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

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2015 Evaluation: A 'Grown Up' Market

In evaluating the investment performance in last year of 2015, most of analysts and investors in the Indonesia stock market usually only focus on the fact that the Jakarta Composite Index (JCI) had been dropped significantly, in this case about 13% year on year, and it makes 2015 as a bad and difficult year. However, there are several reasons that 2015 was actually one of the best years in the history of the development of the capital market in Indonesia. Related to this, I’m comparing 2015 to 2008, ie the year in which the stock index also fell significantly (JCI also dropped in 2013, but the decline was only 1%).

The first, in 2008, the JCI once had dropped 60% from its highest position, even though the economic conditions and performance of the companies at the time only slightly slowed down, where economic growth fell to 4.2% in early 2009 because of the global crisis, but not until minus like the monetary crisis in 1997 - 1998. Then why did the stock index crushed?

And the answer is because, at the time, there was no strict rules from the authority related to margin and short selling, where investors can buy stocks using borrowed funds in large amount (margin), or sell stocks that they do not have (short selling). These transactions cause stock prices to often rise extremely, or in contrary, fell apart within days. In the October 2008, the stock index had dropped 20% in just three days, because there were many investors who forced to sell their stocks because they use the margin funds to buy it. These conditions eventually cause the stock market in Indonesia to be more like a place for gambling rather than investing.

Second, in 2008, the stock exchange supervisory authority almost cannot do nothing against the ‘stock boilers’, where cases of ‘boiled stock’ like the stock of AGIS (TMPI), which was very detrimental to retail investors, went unpunished. Or the case of embezzlement of customer funds by Sarijaya Securities, a brokerage firm, which has no clear solution until today. And third, at the time there were only a small number of stock investors who are actually investors, while the other ‘investors’ are actually speculators who buy shares without any analysis. I still remember a friend who said, ‘I don’t care about fundamental or ‘right’ stocks like Astra, Bank Mandiri, Bank BCA.. As long as Bumi Resources (BUMI) goes up in one day, the others will also go up!’ Dafuq, where’s the logic???

Logo of PT AGIS, Tbk, which now became PT Sigmagold Inti Perkasa (TMPI), the most legendary stock in the case of stock boiling/insider trading in Indonesia.

Then how about this year of 2015? Well, since the market crash of 2008, the rules of stock exchange related to short selling and margin has been tightened, and as results, despite the economic growth also slowed down just like in 2008, but the stock index only fell a dozen percent. Some other rules such as changes in the fraction of stock prices and the limit of auto-reject, although certainly not perfect, but it is also able to reduce the market fluctuations. In the years before 2015, you might seeing the JCI increased or decreased by 7 – 8% in a single trading day, but throughout 2015 the JCI only dropped once by 4% in one day in August, while in other days it was moving normally. After the case of Sarijaya, the authorities created the system of investor fund account (IFA), where investors no longer have to deposit their funds into the brokerage, but into the bank under their own account, and consequently the funds are now safe.

While about the cases of boiled stocks, in this year there were several cases such as the boiled stocks of Trada Maritime (TRAM), Inovisi Infracom (INVS), or Sekawan Intipratama (SIAP), and I think, even after decades from now on, we will always see such stocks in the market. However, in the latter case of SIAP, the Financial Services Authority (FSA) and the IDX has begun to apply sanctions to those who involved, in this case the brokerages, although only in the form of a short suspension. But if this trend of ‘law enforcement’ continues, I optimistic that in the future the public investor will be better protected.

And third, several years ago, everybody in the market only thought about swing, swing and swing, buy stock the morning and sell it in the afternoon, and stocks of ‘junk’ companies which soar 20% in a day became everybody’s favorite, but almost nobody had interest to buy blue chip stocks with strong fundamentals which offer consistent profit in the long term. But lately investors have been more educated, where the use of fundamental analysis, which is the very essence of investment, also became popular (though not as popular as technical analysis). Five years ago almost no one talked about ‘read the financial statements, or ‘calculate the valuation of a stock’, but today the two things has become common among market participants.

In short, if you see that the ‘rules’ of capital market has been more orderly, there is protection for public investors, and increasing awareness of the investors themselves to really invest rather than get caught up in the game of speculation, then it is clear that the Indonesian capital market in 2015 was much better than in previous years. About the Jakarta Composite Index which dropped 12.1% for the year, it is simply part of a normal cycle. At the end, it is impossible for JCI, or Dow Jones, or any other stock indexes, to continue to rise every year, is not it?

And about the movement of JCI for this year of 2016, of course, no one could predict that, but that doesn’t matter, because the important thing here is that the stock market in Indonesia, either the authorities or the investors themselves, has been grown up, and will increasingly grown up over time, because sometimes the process to be grown up, it was only a matter of time. So in ten or twenty years from now on we will see a lot of millionaire or even billionaire who born from the trading floor and.. the question is, are you ready to become one of them? :)

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