You can contact the author (Teguh Hidayat) by email, The author live in Jakarta, Indonesia.

See my pictures in Instagram, @teguhidx.

Why You Should Invest in Indonesia

With a market cap of Rp5,070 trillion or equal to US$ 381 billion on June 19, 2015 the Indonesia Stock Exchange or IDX is of course not one of the largest stock exchanges in the world. However, if we're talking about its history, the IDX has a historical background that was more complex than you might imagine. Including, believe it or not, the first public company in the world whose shares are traded on the Stock Exchange, they were not based in London, New York, or Tokyo, but.. Jakarta!

The company is Vereenigde Oostindische Compagnie, or VOC. It was a company owned by the Dutch Republic engaged in the spice trade from 'East India', aka Indonesia. VOC was founded in 1602 in Amsterdam, Dutch Republic, and became the first company in the world to issue shares and bonds. Also in 1602, Amsterdam Stock Exchange was established as a place to trade the stocks and bonds. A few years later, in 1619, the VOC opened an office in Jayakarta aka Jakarta. Later, the company did most of its corporate activities in the city than Amsterdam itself.

So, although the IDX is still an 'underdog' even if compared to the Tokyo, Shanghai, or Australia Stock Exchange (we cannot compare it to the Wall Street, it is different too far), but the headquarters of the Stock Exchange, ia Jakarta, is a witness of the operations of the first public company in the world, at nearly four centuries ago.

However, about the stock exchange itself, the history of the capital market in Indonesia started in 1912 with the founding of Batavia Stock Exchange (BSX) in Batavia, aka Jakarta (in the 1600’s, although the company was operating here, but VOC shares were traded on Amsterdam). BSX became a place to trade stocks and bonds of Dutch companies operating in Indonesia, as well as government bonds. Along with the rapid development, in 1925, BSX open a branch each in Semarang and Surabaya.

But in 1929, the Wall-Street of the United States were fell and shattered, followed by the Great Depression that swept across the world, including Indonesia. Because the economic situation was not improved after a few years, plus the events of the Second World War in which the Netherlands was annexed by Nazi Germany in 1939, made all branches of BSX finally closed in 1940. In 1945, President Sukarno proclaimed Indonesia's Independence. And after the revolutionary war for 5 years, the Dutch government finally recognized Indonesian sovereignty in 1950. In 1952, BSX was reopened but this time with the name of the Jakarta Stock Exchange (JSX).

Unfortunately, due to various national issues such as the dispute of West Irian, hyperinflation, and the economic crisis in the mid 1960’s, all made the JSX to did not operate at all. In addition, the public companies that had listed on JSX, all of them went back to the Netherlands or disbanded at all. It was only when the power went into the hands of President Suharto in 1967, and the economy began to recover in the 1970’s, the JSX is restarted. And this time the Stock Exchange is actually operates like a stock exchange in general, characterized by the IPO of PT Semen Cibinong (SMCB) in 1977. So SMCB, which is now called PT Holcim Indonesia, is the first company that went public at the Jakarta Stock Exchange. Five years later, in 1982, the Composite Stock Price Index (CSPI) or also called the Jakarta Composite Index (JCI) was launched as a benchmark of the prices of all shares that are traded on the JSX.

So the current Indonesia Stock Exchange was officially opened in 1977.

In the following years, the developments of JSX were very slow that in 1987, there were only 24 listed companies on the Exchange. Until finally in that 1987, the Government of Indonesia issued several new regulations that essentially: 1. Make it easier for companies to go public, 2. Make it easier for the public investors to participate in the stock market, and 3. Establishing several institutions that supporting the capital market, such as the Indonesian Central Depository of Securities (Kustodian Sentra Efek Indonesia/KSEI), Indonesian Clearing and Guarantee of Securities (Kliring Penjaminan Efek Indonesia/KPEI), and the mutual fund companies.

The new regulations have successfully made the JSX to grow quickly, that two years later, ie in 1989, there were no less than 37 listed companies on the Exchange. Also in this year PT Surabaya Stock Exchange (SSX) established, followed by the establishment of PT Jakarta Stock Exchange in 1992 (prior to that, JSX was not a PT/Perseroan Terbatas/limited liability company, but only a government agency). The first half of the 1990’s became the first golden period in the history of the Indonesian Capital Market, where the JCI continued to rise until it closed at the level of 637 by the end of 1996 (and continued to rise until reached 700’s in early 1997). At this time people began to recognize 'stock' as a profitable investment instruments. Until 1996, tens of thousands of people ranging from businessmen, employees, and housewives opened an account in brokerage firms. Also in 1996, the legendary investor, Lo Kheng Hong, decided to quit his job as a head of branch office of Bank Ekonomi (BAEK), to be a full-time stock investor.

Unfortunately, in the middle of 1997, Indonesia hit by economic crisis, and JCI itself fell from 700’s to about 250’s in the next year (1998). However, the JSX continue to operate as usual (although it could be closed on certain trading days). And JCI itself, despite touching its lowest level in 1998, but it eventually made its new high five years later (in 2003). And a year later, in 2004, the JCI went through the psychological level of 1,000 for the first time in history.

In subsequent years, JCI barely kept going up except in 2008 and 2013. While in 2007, PT Jakarta Stock Exchange and PT Surabaya Stock Exchange were merger to become PT Indonesia Stock Exchange (IDX). And IDX is the current name of our beloved stock exchange until today. At the end of 2014, the JCI closed at 5,226, there were 512 listed companies, the market cap was Rp5,228 trillion or US$ 420 billion, and the average value of trading transactions was Rp6 trillion or US$ 483 million per day.

Okay Sir, then why today we are discussing about the history of IDX?

Some time ago I met with Mr. Muhammad Noor Rachman, a high-ranking official from the OJK (Otoritas Jasa Keuangan/Financial Service Authority of Indonesia). During the meeting he asked things like, 'In your view as an investor, what should OJK do to promote the capital market in Indonesia?'

And I replied, ‘Actually, there’s a lot of things you guys can do. There are so many homeworks that need to be done by the OJK and all relevant agencies, including by the companies, brokerage firms, and investors themselves, so that the Indonesian capital markets would be more developed in the future.’

‘However,’ I continued, ‘Bear in mind that the capital market in Indonesia is still in its development age, where the IDX has just been commenced its operation in 1977. If compared with the New York Stock Exchange (NYSE), for example, the world’s largest stock exchange has been open and operating since 1792, or more than two centuries ago. There are about 500 listed companies on the IDX, far fewer than the NYSE which occupied by more than 7,000 companies. But in the 1950’s, there were only about 500 public companies on the NYSE. And if the market cap of IDX at the moment is only about US$ 400 billion, or very very small compared to the market cap of NYSE, then remember that in 1970, the market cap of NYSE was only about US$ 700 billion.’

‘I mean, all we have to do is back to our each desks and work, then let the Indonesian capital market to grow by itself. Because, in the end, the IDX only needs time to develop. And in many ways, some of the developments can not be forced to be achieved in no time. For example, we all agree that someday the JCI will reach 10,000. But if the position of 10,000 was reached in, let say, a few months only, then it is a bit scary, is not it?’

‘On the other hand, Indonesia is a great country. We are the country with the fourth largest population in the world, one of ten largest country in the world in terms of GDP, and our Government controlling an area that stretches 5,428 kilometers from Sabang (Aceh Province), to Merauke (Papua Province), or much longer than the distance between Lisbon in Portugal and Moscow in Russia! We are also one of the countries with the largest water areas in the world, with fisheries and marine resources that are completely unexploited.’

‘And all of them will encourage the Indonesian economy, and subsequently the Indonesian capital market to be great, sooner or later. Because even history proves that the VOC went on to become the world’s biggest company throughout history (yes, you read that right), including successfully brought the Amsterdam Stock Exchange to become the largest stock exchanges in the world in the 17th century, also because they were operating in remarkable Indonesia!’

‘So once again, it's all about time. In comparison, China is the country with the largest population in the world, and also the third largest country (by total area) in the world. And indeed, China is currently the country with the largest GDP in the world (or second largest), and the Hong Kong and Shanghai Stock Exchange are sixth and fifth largest stock exchange in the world. But in 1952, with a GDP of only US$ 68 billion, China were one of the world's poorest countries, and these conditions persist until the next several decades. Only in the early 1990’s, under the leadership of paramount leader, Deng Xiaoping, China's economy developed very rapidly, and so are its stock exchanges.’

Back to our own history. From 1977 until today, the history of the Indonesian capital market is still very short, so there is not much to tell, and also there is not much billionaire that born from the trading floor. Nevertheless, some developments that occurred during the time are quite encouraging. I mean, if you invest in some stocks in IDX in 1990, then have you imagine that the Stock Exchange, within a period of twenty-five years later, would have a total market cap of more than US$ 400 billion? I don’t think so.

But indeed, the US$ 400 billion is still very small compared to the market caps of other stock exchanges around the world. But on the other hand it means that IDX is still have vast space to become larger, and we are part of the progress (we are making history!). In conclusion, the opportunity to be a billionaire belongs to those who make their investment in here, and they make it now! In the next two or three decades, Indonesia's stock exchange will be more crowded, more liquid, and will be among the largest stock exchanges in the world. Of course, the journey will not be that smooth, where the crisis events like 1998 and 2008 ago could happen again at any time. But hey, that's just part of the game, right?

Any inquiries about investment in Indonesia Stock Market? Please send an email to

No comments: