Indonesia’s strong growth during the global economic
crisis made it an anomaly amid a string of debt-straddled markets. With
economic volatility in America and most recently in Europe, investors are
looking to countries like Indonesia where market confidence and capital flows
are running high.
Perceptions of Indonesia’s capital market have shifted
radically in the eyes of investors over the past two years, says a proud Eddy
Sugito, a director of the Indonesia Stock Exchange (IDX). In comparison to global stock markets,
Indonesia is hot.
“It’s crazy. Nobody asks about the risk of investing in
Indonesia anymore. I remember clearly, previously, every time I went abroad I
was always being asked about the risk of investing in Indonesia,” he says of
his constant meetings with foreign investors in Singapore, London and New
In 2009, a year following
the first major impact of the global financial crisis, Indonesia’s stock market
index rose 87%, while in 2010 growth was an impressive 48%.
When PT Agung Podomoro offered global bonds that it
planned to issue in the second semester of this year they were very well
received by investors. “I am aware of the capital market right now, the funds
are so abundant,” Agung Pomodoro’s president director told Eddy.
On the market
Capital Bridge Indonesia’s president director Haryajid
Ramela agrees that Indonesia is in a capital sweet spot. “The United States and
Europe are still suffering financially. That and political crises in the Middle
East are a blessing in disguise for foreign investors looking to run funds in
Indonesia. On top of that, the mutual funds industry is starting to feel that
the market is safe,” he says.
While the IDX lost ground in mid-June on fears of a
flow-on from the critical situation in Greece, investors who have had their
eyes on the market for some time believe there is still room for sustainable
growth. From 1989 until now, investors have gained an average 20% in returns
“Currently, 80% of the companies in this industry are
gaining profit now,” confirms Haryajid.
Given the long-term market prospects, foreign securities
companies are also looking to get involved. “Several of them have already
discussed this with us, but I can’t name names yet,” says Eddy.
The optimism is based on Indonesia’s strong fundamentals
and political stability. The country is predicted to grow by 6.5% this year at
a time when countries like China are facing rising inflation and production
“Can you imagine if China relocated just 3% of its textile
industry to Indonesia? Our industry would double in size. Not to mention the
possibility of Japanese companies relocating post-tsunami. Production costs are
low so Indonesia is very attractive,” waxes Eddy, adding that China currently
controls 65% of the world’s textile market, while Indonesia is responsible for
“With just a minimalist approach the Indonesian economy
grew 6.5%. If the government was
more active, growth rates could hit 8% easily. In this sense, we can understand
why foreign investors are very enthusiastic about investing in Indonesia,” he
The strength of Indonesia’s coal and plantation industries
has also been drawing crowds. And, adds Eddy, “even the Singapore Stock
Exchange now often visits Indonesian companies directly to persuade them to
Amid the positive sentiment, Danareska Securities’ president
director Marciano H Herman is reluctant to accept one reality of the markets:
Indonesia’s banking sector is very open to investors from
Malaysia and Singapore, but there are many complaints that Indonesian bankers
are not granted the same access abroad, he says.
“In the case of capital markets, I oppose ASEAN capital
market integration if there is no fair reciprocity,” he says.
In the shadow of abundant capital inflows, it seems the
high demand is not being matched by supply. The big question is where foreign
investors will put their millions when they are looking to invest. The market
for blue-chip stocks is saturated and the IDX really needs more listed
The task of the IDX is to develop liquidity so that when
big capital flies in it can be properly channeled, but in times of high
liquidity such as now, several strong plantation companies have declined to
“They say they don’t need funds so there is no need to
have an IPO. However, eight new companies listed this year, compared to only
three last year,” says Eddy, adding that he hopes the swathe of state-owned
companies will improve market liquidity.
Another factor is that of those listed companies, several
good ones, for example Sampoerna and CIMB Niaga, have only floated 2% of their
Of the 424 companies listed on the IDX, the shares of just 100
companies dominate 90% of stock market transactions.
“We are now persuading some strong listed companies to
increase their floated shares. We hope they follow XL Axiata’s lead,” says the
IDX director. The cellular operator raised $503 million in a share sale in
With 400,000 investors on the IDX, representing only a
tiny proportion of Indonesia’s population of 240 million, the IDX is still
Indonesians, says Haryajid, are still more comfortable
with putting their money in the bank than taking educated gambles on the global
“We still need to educate and campaign so people understand
the benefits of putting their money here rather than in the bank,” he states.