In Wednesday, November
11, 2015, the Indonesia Stock Exchange (Bursa Efek Indonesia, BEI) suspended three
brokerage houses from stock trading activities, namely Danareksa, Millenium
Danatama, and Reliance, because the three were allegedly ‘not to performing an
adequate procedure of internal controls’. BEI execute the suspension after
receiving a report from the Financial Services Authority (Otoritas Jasa
Keuangan, OJK), that the three were involved in ‘pump and dump’ activities related
to Sekawan Intipratama (SIAP), a
small-cap stock, which causes huge losses for many retail/institutional
investors in the market.
Actually this is not
the first time BEI suspends a brokerage, because on October 29, BEI also
suspended Trust Securities, a small brokerage firm. However, because the stock
in question (SIAP) has been popular before as ‘cursed stock’, and two of the
brokerages (Danareksa and Millenium Danatama) are large firms, then this suspension
received a lot of attention from the media, analysts, and investors themselves.
And about SIAP itself,
this is the umpteenth time where a stock of a small company could rise like crazy,
also with unusual volume of transactions, while in fact, the company continued
to post losses every quarter. At the beginning of 2014, SIAP was traded at Rp80
per share, but it reached 450 in early 2015, or rose more than five folds in
just a year, and its daily trading volume reached hundreds of millions of shares.
Nevertheless the end is obvious: The stock fell apart and, of course, by
dragging many victims.
There are at least
three things we can learn from the case. First, the BEI and OJK finally do
something to protect the investor. Just last month, I criticized the two authorities
because they fail to prevent crimes in the stock market (you can read again the
article here), but it seems like they finally dare to do something,
although only in a form of suspension of the three brokerages who allegedly
involved in case of SIAP (and even today the suspension has been lifted). But
at least this suspension has damaged the reputation of Danareksa, Millenium
Danatama, and also Reliance, where the investors would think twice to open a
trading account in the three brokerages. In this case the action of Director of
BEI, Tito Sulistio, deserves to be appreciated because, just think about it: If
you are the Director of BEI, would it be that easy to suspend the above three?
Because you will surely receive opposition from some people who are ‘disturbed’,
moreover, two of the three brokerages are large and influential ones.
However, if an
institution committed an offense, they have to be punished no matter how big
they are. I hope that the action of BEI could be a signal that they’re really
siding with all participants of capital market including retail investors, not
the big players only.
Secondly, this case
would be a reminder that as an investor, you should be careful in selecting a
broker, and I’m serious about this: You should
be careful.
Because, in theory, a
broker should support the investors/its clients to be successful in the equity
markets. However, in practice, the majority of the brokerage companies only
care about trading fee, and they do
not care whether you make profits or suffer losses, or worse: Some stockbrokers
may deliberately try to reap profits that derived from investor’s losses. In
the US, there is Jordan Belfort, a stockbroker who was arrested and imprisoned
because of case of insider trading (and there may be many other stockbrokers
that also imprisoned). But in Indonesia, I have never heard about a stockbroker
or any other stock market professional who was imprisoned for cases of insider
trading or any other crimes, while, once again, this case of SIAP is not the
first time (so this is a big challenge for you, Mr. Tito Sulistio, and also any
other officials on the BEI and OJK, but we will appreciate if you guys can do
more).
Related to tips in
choosing a broker, you can read it
here.
And third, the case of SIAP
should be a lesson for you, whether you’re one of the victim or not, to stay
away from from ‘boiled stocks’, ie a
stock which its movement is controlled by particular parties (usually the
company itself), not by the market flow. Actually it was not that hard to see
that SIAP is such boiled stock. In June 2014, SIAP became the object of
backdoor listing for PT Indo Wana Bara (IWB), a coal mining company, where the
owner of IWB acquired SIAP, and SIAP issued 23.4 billion of new shares at the
price of Rp200 per share (so the proceeds were Rp4.7 trillion, equal to US$ 400
million), which used to acquire IWB.
The problem is, IWB has
not yet in production, and even worse, the company still lacks of heavy
equipments, trucks etc. to carry out the mining activities, and the shareholders
did not have the money to buy the equipments. When SIAP held a rights issue
worth Rp4.7 trillion, the company do not receive the proceeds in cash or any
tangiable asset, but only goodwill valued
at Rp4.7 trillion, which become the largest asset of the company.
And the question, how
could a coal mining company that not even ready to operate, be valued up to US$
400 million??? But the subsequent events were predictable: The owner of SIAP
trying to make easy money by selling the stock, which actually has no value at
all, to pension funds or other institutional investors, with the promise that the
stock would be repurchased (repo), and that ‘the stock price in the market will
be maintained’, and that ‘if the coal mining start to operate later, the value of the earnings
generated will be far more than just US$ 400 million’ (Okay, later.. but when? What
about the low price of coal?). That’s why the stock of SIAP was pumped up to
make profit for the repo holders, and consequently the movement of SIAP in the
market is not natural at all, which it can easily go up or go down extremely,
and the transaction volume also too large for a third-liner stock.
So when the stock finally
collapses, I’m not surprised at all, because SIAP is clearly a boiled stock (still
remember the case of TRAM? Read it again in here). The
fundamental of the company is also totally bad, where SIAP continue to suffer
losses. About brokerage firms that involved in the boiling of the stock, it is a
different story, but at least it could be a lesson for the brokers themselves to
behave.
However, the stock
market is not only a place for investors, but also a place for speculators and those
who think that they could do any means to make a profit. So like it or not, there
will be other SIAPs the future. But as long as you play straight and not try to
speculate with boiled stocks like SIAP or others, then trust me, your portfolio
will be just fine.
Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com
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