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Indonesia’s stock market is still dominated by foreigners, according to the latest data from a government agency, but individual investors are catching up as share prices reach record highs.

Analysts and brokerage executives said more local retail investors would put their money in the stock market as consumers’ buying power remains strong. These investors are expected to provide market stability should the market plunge, by sustaining stock prices with their demand. At these times, local investors would buy shares as foreigners are in ‘selling mode’, based on the view that prices are cheap relative to profit potential following the market’s recent plunge.

The Indonesia Central Securities Depository (KSEI), a self-regulatory body of capital markets, recorded a 79 percent increase in equities owned by local investors to Rp 845.76 trillion as of the end of July from a year earlier. Stocks owned by foreign investors rose 43 percent to Rp 1,377.35 trillion.

“The chance for the number to increase is huge,” said Budi Ruseno, analyst at Bhakti Capital. “With the uncertainty in the global economy, this could be the chance for local investors to dominate our own stock market.”

Budi said that typical driving forces behind investment are economic stability and rising incomes. As the economy grows, people have more money to save and invest, and “as investment goes, these people would want to find alternatives, and the equity market would be an alternative.”

KSEI data showed that foreign ownership in Indonesian stocks dropped to 62 percent of the total Rp 2,223.12 trillion by the end of July, from 67 percent a year before. Local investors’ portion rose by 5 percentage points.

The Jakarta Composite Index closed at a record high of 4,193.44 on Aug. 1, which put its gain to 13 percent from the end of 2010. The benchmark has since fallen as global markets slipped in the past two weeks amid concern of Europe’s debt crisis and slowing economic growth in the United States.

In the three days to Friday during which the index gained 4.2 percent, overseas investors sold Rp 1.2 trillion more in shares than they sold at the Indonesia Stock Exchange, while locals were net buyers. Foreigners typically accounted for about 70 percent of total trading by value.

KSEI data showed that as of the end of July, the number of retail investor accounts registered with the agency climbed 16 percent in July to 346,864, from 298,322 a year earlier.

That number represents about 0.15 percent of the population, and retail investors may include both Indonesians or foreign nationals residing in the country.

“A rule of thumb for the minimum number of retail investors in the capital market is 1 percent of the nation’s population,” said Omar S. Anwar, president director of Trimegah Securities.

With Indonesia’s population at 237 million people, it can have at least 2.37 million investors, or about seven times the current number. Neighboring Malaysia has investors accounting for about 12.5 percent of its population, he said.

Education through marketing campaigns and training would be the key to encourage people to invest in the equity market, and that should include educating the public about the concept of investing compared to savings, as well as risks and return in the market, Omar said.

Himawan Gunadi, president director of UOB Kay Hian Securities said that securities brokerages are sometimes hesitant to tap into potential investors outside Java, the main island, because of the lack of licensed broker-dealers.

Retail investors make up 40 percent of total transaction at UOB Kay Hian, and in May and June alone, there were 311 new retail accounts.

“Indonesia’s economy is sound, Investors would want Indonesian stock even when the market fluctuates,” Himawan said.