If you open IDX website
today (www.idx.co.id), you will find the news that at the end of 2016, domestic
investors owned about 45.5% of all outstanding stocks in the market, while the
other 54.5% were belonged to foreigners/international stockholders. Although the
Indonesian Stock Exchange was still dominated by foreign investors, but the ownership
of 45.5% of domestic investors was the highest in the last ten years or longer.
Previously, between 2007 and 2015, the local investors owned about only 33 –
41% of all outstanding stocks in the market.
But since 2016, domestic
investors began to shift the dominance of foreigners in the Indonesia stock exchange,
first in term of trading value and now in term of stock ownerships, and this trend
continues until today. But before we talk about domestic investors, first we
talk about international investors who put (part of) their investments in
Indonesia.
And here we go. Until
today, Indonesia is still have not fully recognized as ‘a good country for
investment’ or as they call it, a country with investment grade. Until the beginning of 2017, from three of the
world’s largest rating agencies, Fitch Ratings, Moody's and S&P, only Fitch
and Moody's which rated Indonesia as an investment grade country. Even in
Southeast Asia, in terms of this investment grade status, Indonesia is still
below Singapore, Malaysia, Thailand, and even the Philippines.
The lack of good
investment ratings causes the global fund managers to put Indonesia as one of their
latest destinations to place their investments, because to invest in Indonesia
Stock Exchange (IDX) is considered very risky/closer to speculation. So if you
manage US$ 1 billion to be placed in equities around the world, for example,
then you will probably only put a total of US$ 1 million in here, to buy only mainstream
stocks like Astra International (ASII), or Bank BRI (BBRI) (note: ASII’ market
cap is only about US$ 35 billion, but it is already one of the biggest market caps
in IDX).
So, besides the foreign
companies that invest in Indonesia by acquiring local companies, the international
asset management companies usually unwilling to buy stocks on the IDX, and
consequently the value of foreign buy/sell in the stock exchange was never too
big. The largest net buy of foreigners occurred in 2014, which is worth Rp42.6
trillion or about US$ 3.1 billion,
and that is the total value of purchases made by all foreign investors in IDX.
While according to data
from Investment & Pensions Europe, by the end of 2016, the world's 400
largest asset management firms has AUM of a total US$ 56.3 trillion! But only a
very-very-small portion of the funds that have reached the Indonesia Stock
Exchange. Actually, from the 400 asset management firms above, most of them
might never buy stocks in here (or they don’t even realize that IDX exists).
But interestingly, the ‘small’
value of trading transactions by the foreigners were still strong enough to affect
the fluctuations of Jakarta Composite Index (JCI), especially in the short
term, that if they are buying then JCI would usually rise, while if they are
selling then JCI would usually fall. In June – August 2016, at the peak of tax amnesty sentiment, the foreigners
bought stocks in large quantities so that the net foreign buy position in the
market soared from only Rp4 trillion (US$ 350 million) in May, to Rp38 trillion
(US$ 2.9 billion) in August, and the JCI jumped from 4,700 to 5,470. But after
August, the foreigners began to sell, and as a result the JCI losing its power
to rise higher. Actually, based on historical data that is shown in
this article, the actions of buying or selling by international investors
do not affect the ups and downs of JCI in the long term/yearly, because in the
long run, the movement of JCI is mostly affected by macroeconomic fundamentals
and performance of the listed companies. But in shorter terms, in this case
monthly or weekly, the inflow and outflow of international funds possess
significant influence on JCI fluctuations, although, once again, the value of
international funds in the stock exchange is actually very small.
Increasing Number of Domestic
Investors
When international fund
managers started to sell their stocks since August 2016, then normally the JCI
would fall. But until today, the JCI is still stable at 5,250s, aka did not
back to 4,800s as in early 2016 (ie when the international fund has not entered
the market). The question is, how could it be?
And maybe the answer
is, when the international investors continued to sell in the last few months,
but at the same time the local investors
continue to buy. There are at least two facts which supported this opinion.
First, during 2016, the aggregate value of stock trading by local investors was
Rp1,164 trillion (US$ 87 billion) or 63%
of total trading value on the Stock Exchange, and it increased significantly
compared to the previous years of Rp800 trillion (US$ 60 billion), or only 57 – 59% of total trading value of both
local and international investors. Second, as mentioned above: The increased portion
of local investors’ ownerships of outstanding stocks in IDX, from 33 – 41%, to a
record of 45.5%. Since we know that Philip Morris et al has not sold their
holdings in HM Sampoerna (HMSP) and others, the increase in domestic investors’
ownerships is not due to foreign outflow, but because of the increasing number of new local investors who began to buying
stocks.
 |
In 2016, for the first
time, domestic investors dominated almost two thirds of the total value of
trading transactions on the Stock Exchange.
|
So what caused the stock
exchange to be flooded by local investors? Well, that's pretty obvious, is not
it? In the last 1 – 2 years, the IDX as regulator as well as organizer of the
Stock Exchange has done many activities which aim to educate and encourage the
public to invest in stocks, ranging from setting up branch offices up to Papua
(the most eastern province in Indonesia), organizing capital market seminars on
schools, universities, and corporate offices (I also had been invited as a
speaker), launched the campaign of ‘Yuk
Nabung Saham!’ (literally ‘let's saving on stocks!’), and began to put advertisement
on television and newspapers. In short, we could say that the people in IDX are
working hard to increase the number of local investors in the market, and
consequently the number of retail local investors locally increased from about 300,000
in 2013, to 550,000 by the end of 2016, and counting until today.
But when domestic funds
flooded the stock market, the number of international funds in here is
stagnant. Between 2012 and 2016, international investors recorded a net buy of
Rp31.5 trillion (US$ 2.4 billion) in total, and this figure is quite small
compared to the previous five years (2007 - 2011), which totaled Rp109.6
trillion (US$ 8.2 billion). But if we look at the data of macroeconomic of
Indonesia since 2007, the less spending by international investors in the last
five years could be explained: Between 2007 – 2011, Indonesia were in the peak
of economic growth thanks to commodity booming (which interrupted by the global
crisis of 2008, but the fundamental of domestic economy at the time remained
stable). But starting from 2012 until today, along with the decline in commodity
prices, our country never again saw economic growth of more than 5.5% per year like
before, so of course the international investors lost their appetite to invest
in here.
However, if you look at
the current fundamentals of national economy, then, as we already discussed it
in here, it is quite clear that the current economic condition, though not
as good as in 2007 – 2011, but slowly recovering from its lowest point in 2015,
and there is a prospect that the growth of national GDP will score a high rate
of annual growth in the next few years. This means, regardless of short-term
issues such as local politics etc. that cause international investors to sell,
but in the long run they will be back.
But even if they are
not coming back, we can still rely on the local funds to maintain ‘peace’ on
the market. You see, although the number of domestic investors in the stock exchange
has increased significantly since 2015, but the number is still less than 1% of the total population of Indonesia, aka very
small, thus it could still be increased further in the future, provided that
IDX continues to aggressively campaigning for the stock investment itself. On
the other hand, although the S&P still has not given the rating of
investment grade for Indonesia, but I thinks it’s just a matter of time,
because the economic development including the development of infrastructure in
the country still running smoothly until today, not to mention that the prices
of coal and CPO, which is the backbone of the national economy, began to rise.
And when the S&P
finally gives the investment grade rating, then there you go: Indonesia will officially be a country that
is worth for investment. And from that point, Indonesia will no longer be
underestimated by the big international fund managers, and they will start to
buy stocks in here. This combination of local and international investors will
eventually make the Indonesia Stock Exchange to be much bigger than before, at
least become the largest in Southeast Asia (bigger than Singaporean Stock
Exchange), and it will happen sooner or later.
(Note: The S&P actually raised Indonesia’s rating
to investment grade in May 2017, or only four months after this article was
written).
So as I often said, ‘The
stock market in Indonesia is just like the stock market in the US but at 50 or
even 100 years ago, and we are like Warren Buffett in the 1960s. Thus, I can
say that we are lucky, because we are the
early generations of the stock market in Indonesia, but the luck will be
useless if we do not start to invest from now! So, are you join us or not??
Original article was written and published (in
Indonesian Language) in January 25, 2017. Any inquiries, contact the author
(Teguh Hidayat) by email teguh.idx@gmail.com.
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