Tito: Upside Potential for Indonesian Stock Market

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JAKARTA (TheInsiderStories) – The current positive development on the economy prompts the management of Indonesia Stock Exchange (IDX) to be brave in unveiling some initiatives for capitalizing the upside potential in the stock market.

TheInsiderStories try to capture IDX’s president director Tito Sulistio perspective about the future of Indonesia capital market. He noted that Jakarta Composite index (JCI) is believed to make another record high in this year.

Based on the self regulatory organization data, the Jakarta Composite Index has peaked to 5,829 in June 22, the last trading day before entering the one-week holiday for celebrating Eid al-Fitr. Trading in IDX will resume on July 3.

On that day, IDX reported the capital market capitalization reached Rp6.37 trillion. While foreign investors booked net buy of Rp17.37 trillion on year to date basis. JCI has also gained 10.06 percent until June, 22.

For Indonesia, the foreign capital inflows, both in direct investment (FDI) and portfolio investment, are expected to continue along with government structural reform and investor confidence in the national economic outlook.

Indonesia’s economic acceleration, the nation’s recently obtained investment grade status from Standard & Poor’s (S&P) and the (near) record high position of the composite index makes it more attractive for Indonesian companies to conduct an initial public offering (IPO) on IDX.

“We are optimistic that the IDX would make another record high on the back of improving market liquidity,” said Tito by adding IDX management targets the market liquidity to reach Rp340 trillion this year and the market capitalization to reach over Rp6,500 trillion.

Tito added, that new listed firms or IPO are expected to above 35 this year and will increase in number next year. The new listed firms, he said, have good quality on their fundamentals.

To grab the potential company go IPO, He continued, the IDX management is now creating such a best mechanism and distribution for attracting more new listed firms.

IDX management, according to Tito, now also focuses on the relaxation of margin trading, strengthening the brokerage firms, optimizing the existing investors in investing their funds in stocks, developing new data center which can serve trading orders by up to 15 million, a jump from current 5 million orders. He added, new trading center is scheduled to operate or go live in August this year.

Furthermore, Tito stated, the active investors at IDX reached 187,268 investors by end of 2016, grew by 21.3 percent from previous year. While total investors was 535,994 listed on the single investor identification (SID), up 23.47 percent.

The market capitalization increased 18.09 percent last year. Total funds mobilized into stock market last year was Rp675.05 trillion and US$247.50 million, consisting of IPO Rp12.11 trillion, rights issue Rp62.51 trillion, warrant Rp1.14 trillion, bonds Rp113.29 trillion, bonds US$47.50 million, and government bond Rp484.63 trillion and US$200 million.

While the set up of financing firms in stock market would help and attract more companies to launch their IPOs. The current declining trend in bond yields and lower interest would also prompt investment firms to put more money in stocks.

Now the investment in stocks reaches 20 percent and investment in insurance instruments reaches 13-16 percent. Major investment of investors’ funds is now focused in bond instruments.

Barat Joshi, investment manager at Aberdeen Asset Management Indonesia judged, that the economy of the United States is improving, prompting the hike of Fed rates, also lifting the yields of U.S.’ treasury.

“But the spread of Indonesia’s bond yield is positive and very distant over U.S. treasury, then foreign investors would continue buying Indonesia’s bonds,” he said, adding the upgrade in rating to investment grade by S&P will boost the foreign appetite.

While U.S. stocks are considered expensive at current prices (relative high valuation), another reason for foreign investors opting to invest their funds in Indonesia’s capital market.

(Written by Brigida Ernestina Elu Wea, Email: flo@theinsiderstories.com)