Indonesia Stock Exchange: (soon) The Largest in Southeast Asia

You may hear the news that Indonesian Bank Central Asia (BBCA) has taken over the position Development Bank of Singapore (DBS) as the largest lender in Southeast Asia, in terms of market cap. And based on the experience, when a company has obtained a ‘largest’ title either in terms of market cap, asset, or the value of the equity, it must mean something. Moreover, you may rarely hear that Indonesian company was able to ‘beat’ the Singapore company, and that’s because in terms of capital market development, like or not, we are still far behind our little annoying neighbor. And maybe the question, what is the position of Indonesian companies and its Stock Exchange in Southeast Asia?

In terms of market capitalization, as of February 12, BBCA had a market cap of USD 24.1 billion, or greater than the DBS of only USD 23.3 billion. DBS public relations may say that the market cap means nothing, as the stock price could ups and downs at any time. But the interesting fact is, in the last five years, BBCA has gained 115.9%, while DBS declined 10.8%. I mean, in the short term, the changes in stock price and market cap do not mean anything. But if a stock rises significantly after five years, while the another have fallen in the same time period, then surely there is a significant fundamental differences of the two related companies.

And here we go: Between December 31, 2010 to September 30, 2015, BBCA’ equity increased from Rp34.1 to 86.0 trillion, an increase of 152%. While DBS? In the same period, its equity rose from SGD 26.6 to 39.4 billion, or only increased 48%. Okay, in terms of assets and equity, DBS is still far greater than BBCA, and in fact BBCA itself is not the biggest bank in Indonesia in terms of asset (the title belonged to Bank Mandiri, followed by Bank BRI, and Bank BCA).

But in terms of growth, well, we definitely won the game, which is not only BBCA, but the equity of other major banks in Indonesia also grew about 150% in five years. While the moderate growth of DBS is reflecting the growth of the banking industry in Singapore as a whole, in which two other largest lenders in Singapore, ie Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), in the same period, their equity grew 79.6 and 40.7% respectively.

But, back to the question above: Actually, what is the position of Indonesian companies and its Stock Exchange in Southeast Asia? Well, here is the data of ten largest companies in terms of market cap in four largest stock market in Southeast Asia, ie Singapore, Indonesia, Malaysia, and Thailand:

Companies	Closing Price	Market Cap
Singapore (SGX)
SingTel	3.56	40.8
Jardine Matheson	53.23	37.9
Jardine Strategic	27.92	30.8
DBS Group	13.02	23.3
OCBC	7.46	22.0
UOB	17.56	20.2
Hongkong Land	5.62	13.2
Wilmar International	2.91	13.2
IHH Healthcare	2.11	12.4
Thai Beverage	0.68	12.1
Indonesia (IDX)
HM Sampoerna	105,700	36.5
Telkom Indonesia	3,285	24.6
BCA	13,275	24.1
Unilever Indonesia	41,100	23.3
BRI	11,800	21.4
Astra International	6,825	20.5
Bank Mandiri	9,725	16.7
Gudang Garam	60,700	8.7
BNI	5,275	7.2
Indofood CBP	14,725	6.4
Malaysia (BursaMalaysia)
Maybank	8.51	20.0
Public Bank	18.5	17.2
Petronas Chemicals	6.9	13.3
IHH Healthcare	6.49	12.9
Axiata Group	5.6	11.9
Maxis	6.06	11.0
Petronas Gas	22.24	10.6
DiGi.com	4.85	9.1
CIMB Group	4.2	8.6
IOI Corporation	4.67	7.1
Thailand (SET)
PTT	230	18.4
Siam Cement	426	14.4
Advanced Info Service	166.5	13.9
Siam Commercial Bank	130	12.4
Kasikornbank	161	10.8
CP ALL	40.3	10.2
Bangkok Bank	148	7.9
Krung Thai Bank	17.2	6.7
PTT Global Chemical	51.5	6.5
Bank of Ayudhya	30.3	6.2

Note:

1. Closing price as of February 12, 2016
2. Market cap is in billion of US Dollar.
3. The closing prices are in the currency in each country, except for Jardine Matheson, Jardine Strategic, and Hongkong Land are in US Dollar. All of three are headquartered outside Singapore, thus held status as foreign companies.
4. IHH Healthcare is headquartered in Malaysia, but its stock listed on both Bursa Malaysia and Singapore (dual listing)
5. Thai Beverage is headquartered in Thailand, but its stock is listed on the Singapore Exchange
6. Exchange rate used for the calculation of market cap (per US Dollar): Singaporean Dollar 1.40, Indonesian Rupiah 13,471, Malaysian Ringgit 4.15, and Thailand Baht 35.62.
7. Stocks with the largest market cap in Singapore is Prudential Plc., followed by SingTel. However Prudential Plc, which is also listed on the London Stock Exchange, its shares in Singapore are completely illiquid, so it is rarely regarded as one of the big caps in SGX.

And if we take fifteen largest stocks from the above table, here are the results (market cap in billions of US dollars):

Companies	Country	Market Cap
SingTel	Singapore	40.84
Jardine Matheson	Singapore	37.89
HM Sampoerna	Indonesia	36.52
Jardine Strategic	Singapore	30.79
Telkom Indonesia	Indonesia	24.57
BCA	Indonesia	24.05
Unilever Indonesia	Indonesia	23.31
DBS Group	Singapore	23.29
OCBC	Singapore	21.96
BRI	Indonesia	21.38
Astra International	Indonesia	20.49
UOB	Singapore	20.20
Maybank	Malaysia	20.02
PTT	Thailand	18.44
Public Bank Bhd	Malaysia	17.21

Note: These fifteen could be called as the biggest companies in Southeast Asia (not just Singapore, Indonesia, Malaysia, and Thailand), in terms of market cap. This is because the three largest companies in Vietnam, namely Vinamilk, Vietcom Bank, and Petro Vietnam, their market caps are about US$ 5 billion or less. While the stock exchanges in other countries in Southeast Asia, they are relatively underdeveloped.

IDX versus SGX

From the above data, it is quite clear that our capital market is in a relatively better position than Malaysia and Thailand, at least in terms of market cap, but still behind Singapore. And here’s the interesting fact: With a GDP of USD 889 billion, Indonesia is the largest economy in Southeast Asia, much larger than Singapore with the GDP of only USD 308 billion. But in terms of value of the capital market, as of February 12, all the shares listed on IDX has a total market cap of Rp5,005 trillion, or equivalent to USD 371 billion. While SGX? As of the end of January 2016, its market cap was SGD 855 billion, or equivalent to USD 612 billion.

But how could the value of shares in the Singapore Exchange is even greater than the value of the country's GDP? There are two answers. First, Singapore has always been known as a good place to invest, where the Government is very friendly to both domestic and foreign investors. In 1961, four years before independence from Malaysia, the Singapore Government even has set up a special agency under the Ministry of Trade and Industry, called the Economic Development Board (EDB), whose job is to provide solutions and to create value for shareholders and companies in Singapore. Perhaps the founding father of Singapore, Lee Kuan Yew, he realized from the very beginning that his country is not vast at all, so that Singapore is unlikely to develop its own economy without the help of foreign capital. Thus, the Government treated the investors with generous policy such as tax havens, etc., and the Singapore Exchange is developed in such way that many world-class companies are interested to be listed in there. Some large companies listed on SGX, such as Jardine Matheson, IHH Healthcare, and Thai Beverage, they are not headquartered in Singapore. There are also some Indonesian companies whose shares are not listed on IDX, but on SGX.

And second, supported by arguably unlimited capital (as foreign investment from around the world keep flowing in), Singapore companies is able to develop a business/investment not just in Singapore itself, but also in other countries, mainly in China and Southeast Asia. For example DBS, OCBC and UOB, all of them has operations in Indonesia, or SingTel which is one of the main shareholders in Telkomsel, the largest celullar company in Indonesia, and Jardine Matheson is also the majority shareholder in Astra International. You could say that Singapore is like a fund manager for big investors from all over the world (including from Southeast Asia itself) who are going to put their asset/investment in Southeast Asia, or even in the whole Asia.

So if someone from United States are going to invest in Southeast Asia’s emerging market, the name of Singapore would always came first, and maybe followed by Jakarta. And although it does not seem fair for Indonesia as Singapore’s big brother (way big), but almost every region in the world has always have a city (or a small country) that became the region financial centers, such as London in the United Kingdom, Zurich in Europe, New York in North America, and Hong Kong in Asia. In Switzerland, the market cap of the stock exchange was USD 1,516 billion a year ago, while the country’s GDP was only USD 701 billion.

But no matter how fast the growth of stock exchange in a country, at the end it will be hampered either by the size of GDP, country’s territory, and the limited human and natural resources. The easiest example is the Hang Seng Index in Hong Kong, which had been powerful in the past, but its position as the second largest stock exchange in Asia (behind the Nikkei) is now replaced by the Shanghai Stock Exchange, which grew far more significant in the last two decades. There were no special treatments from the Chinese Government on their stock exchange, but the exchange grew itself along with the rise of China's GDP.

While the Singapore Exchange (SGX), though its market cap is still far above the Indonesia Exchange (IDX), but in the last five years the Jakarta Composite Index (JCI) rose 34.6%, while the Straits Times Index (STI) fell 17.7%. At the end of 2009, IDX had a total market cap Rp801 trillion, or equivalent to USD 215 billion based on the exchange rate at the time. SGX, meanwhile, at the same time had a market cap of SGD 669 billion, or equivalent to USD 476 billion. This means that in the last five years, the value of shares on the IDX rose 72.9%, while the value of shares in SGX rose only 28.3%, including adjusted for the value of Rupiah (which is more volatile compared to SGD). If the time period is extended to one or two decades back, then the conclusion also remains the same: Indonesian Stock Markets are growing faster than Singapore.

And if this trend continues, it is only a matter of time before IDX will overtake SGX as the largest stock exchanges in Southeast Asia, and actually the opportunity is wide open. I mean, when Singapore companies are going to invest/open a branch office outside the country, then their operational activities of course will be limited by specific regulations from the local Government that do not apply to domestic companies, and that's why DBS will never become the biggest bank in Indonesia or in other countries where they operate, except in Singapore itself.

While Bank BCA? Well, it do not need to open branches abroad (although the Bank now has branches in Singapore and Hong Kong), because in Indonesia alone there are still many areas that have not been reached by banking service, and the expansion of banking services during the past few years is indeed significant. In my hometown in the suburbs of Cirebon, West Java, ten years ago, it was very difficult to find an ATM machine, but now the ATM can be found almost everywhere.

My point is, unlike Singapore, Indonesian companies still have a lot of room to grow in their own country before they need to go abroad (we are the largest country in Southeast Asia, and also one of the largest in the world), so the IDX will grow more easily. If the government or the Indonesian Stock Exchange (BEI) itself can copy some SGX policies in developing capital markets in Singapore, such as:

1. Encouraging foreign companies for listing on the Stock Exchange, or dual listing (in Indonesia and in their own country), by offering certain easiness. If this is hard to do, at least Indonesian companies who listed in Singapore can be directed to also listed on the IDX.
2. Encourage the foreign investments to get in, so they can buy the shares of the foreign companies (Foreign met foreign).
3. Creates and develops products of investment/trading outside of stocks and bonds, such as index futures (which are already made), exchange traded funds (ETF, also have been made, but is not yet popular), real estate investment trusts (REITs), business trust, structured warrants, etc.

..Then capital market in Indonesia will grow even faster in the future. The above policies may sound liberal, including may cause a rising competition for domestic investors/companies against the foreigners, and the possibility of growing speculation, but in fact those polcies are applied by some financial center countries such as Singapore, Hong Kong and Switzerland, and as a result not only the capital market, but their economy also thrive as a whole. If we only expect domestic investors and companies to ‘enliven’ the stock market, then for the process of education alone may take several decades, as Indonesia is still a developing country.

But, okay, let's say that the stock market in Indonesia will grow by itself without any special treatment from the Government and the relevant authorities, then how about its chances in the future? Well, as already mentioned above, even without any stimulus from the Government, it’s only a matter of time before IDX will overtake SGX as the largest stock exchanges in Southeast Asia, and its first signal is when the market cap of BBCA was already larger than DBS.

And for large fund managers from United States, etc., when they invest in Southeast Asia, then of course they would choose the ‘largest’ first. On the other side, it is quite clear that the shares in Singapore Exchange offered no decent profit in the last five years. So in this case, I think in the near future the foreign funds will be flowing from SGX into the IDX. Until February 12, the foreigners only recorded a net buy of Rp1.5 trillion (about USD 110 million), or still very small compared to Rp22.6 trillion (about USD 1.8 billion) of net sell throughout 2015. If some foreigners switch their investment from SGX to IDX (let’s take a ‘small’ number only: USD 1 billion), then of course the JCI would rise significantly. And actually, in this website we already said in early January that the JCI will go up even when the Dow was slumped. You can read the article in here once again.

Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com