The Jakarta Composite
Index (JCI) opens the year of 2017 with a 0.4% drop to 5,276 on Tuesday, January
3, yesterday. But what might be interesting is that on that day, there were
some stocks that fell by more than 10%, say Atlas Resources (ARII) which
slashed 25% from 520 to 390, in just one day! Later on Wednesday, January 4, it
was Semen Baturaja (SMBR) which crushed down 24.8%. This is interesting
because, as we know, under the rules of the Stock Exchange, any stock can only
fall for a maxium 10% in a day. So whether the regulation has changed? And if so,
then how will it impacts the JCI?
Based on the Decree of
the Board of Directors of the Indonesia Stock Exchange (IDX) as of December 13,
2016, it was mentioned that starting January 3, 2017, BEI re-enacted the rule
of symmetric auto rejection (AR), From previously asymmetric AR. Then what is
symmetrical AR? Asymmetric AR? Well, in this case maybe I have to present again
the following article, quoted from the article last September
2016:
So, here it is. On August 25, 2015, or exactly one
day after the stock market was hit by panic
selling, IDX as the market regulator immediately acted by launching four
new policies at once: 1. The listed companies are allowed to buy their shares
in the market (buy back) immediatley without shareholder’s general meeting, 2.
Any stocks can only go down maximum of 10% in a day, 3. Investor Protection
Fund is increased from Rp25 million (US$ 2,000) to Rp100 million (US$ 8,000)
for each accounts, and 4. Stockbrokers are prohibited from doing short-selling
transaction. The goal of these new policies was that JCI, which was dropped to
4,100s from the previous 5,500s, to be recover soon, or at least not go down
further.
The most interesting rule is the rule Number 2, ie
that any stocks can only go down for a
maximum 10% in a day. So for example the price of share A is 1,000, then in
a day this A share can only fall to 900 only (down 10%). If there were people
who put bid or offer at a price lower than 900, say 890, it will automatically rejected by the system
(auto reject), so there will be no transaction at the price of 890, and
consequently the price of share A in the market remains 900. If someone
persists in buying or selling A shares at 890, then he can only do that in the
next trading day.
Previously, IDX regulations mentioned that stocks
with nominal prices of Rp50 - 200 per share could rise or fall by a maximum of
35% in a day, Rp200 - 5,000 could rise or fall by a maximum of 25% in a day,
and above Rp5,000 could rise or fall by a maximum of 20%. The rule in which a
stock has the same limit of maximum increase
and decrease (eg the price of share A is 100, then it can rise up to 35% and also
can fall by 35% as well, in a day), it is called symmetrical AR. But after August 25, 2015, then a stock can still
rise up to 35% in a day, but can only drop for a maximum 10%. These different limits of increase and
decrease, is called asymmetrical AR.
But starting January 3,
2017, the IDX re-imposed the rule symmetrical AR, which means that if you hold
a stock at a nominal price of below Rp200, then now your share could be down
35% in a day! Also, if you own a stock with a nominal price of above Rp5,000,
then the stock could also sag 20%, in just one day. Sounds horrible? Actually,
not really.
Because, look: Back in
August 2015, when the IDX enacted the rule that any stock can only fall by a
maximum of 10% in a day, the consideration is that because at the time, the
market were crashed where any good quality stock may drop to a very low level
which is no longer reflecting the company's fundamentals. And if these
conditions continued, there would be a mass panic, which will ultimately
destroy investor confidence in the IDX and the prospects of the stock investment
itself. Thus, with the regulation that a stock could only fall for a maximum of
10% in a day, then the JCI, although it may still go down, but the decline will
not be as deep as before. And the horrible moment like when the JCI dropped by more than 20% in just three
days in October 2008, which caused a very huge psychological blow even for
the most experienced investors, would not happen again.
But of course, the rule
only needed if the market were in turbulent conditions. But if the stock market
was peaceful as today, how? Then of course, the regulation is no longer needed.
So actually when the IDX has revoked the regulation and restore the original
rules (where a stock can rise or fall maximum 35%, 25%, or 20% in a day,
depending on nominal price), it means that the IDX itself opined that market
conditions has been safe, at least for now, where the movement of most stocks has once again followed their own fundamentals
without extreme fluctuations like in 2015. So even though BEI is now allowed
the shares of Bank BRI (BBRI) to
drop for a maximum of 20% in a day, for example, but it is very unlikely for
BBRI to go down that deep within a day, because besides the current market
conditions are quite stable, the company has a very strong fundamentals.
(Note: In the last 10
years or longer, BBRI only once fell nearly 20% in a day, ie in October 2008,
at the peak of global recession).
On the other hand, the
reimplementation of symmetrical AR rules will cause some ‘garbage’ stocks,
which had been skyrocketed like crazy without being supported by fundamentals,
but on the other hand it was hard to come down because the IDX rules only allow
the stock to fall by a maximum of 10% in a day, then later they will return to
it’s ‘fate’, namely: If the stock must go down to as low as it should be, then
here you go! And that's why, if you observe, the stocks which fell about 20%
per day were those with bad fundamentals, or the valuations were ridiculously
high, or both. Or else, the volume of transaction is not liquid so that the
stocks are easy to rise and also easy to go down.
But if you only buy and
hold the shares of a fundamentally good company, managed by a trustworthy
management, whose the stock movements follow a normal market mechanism, and the
purchase price is reasonable or cheap, then of course, you have nothing to
worry. Just relax, your stock will be fine, and you can go fishing or play
chess as usual.
Nevertheless, the above
discussion still does not answer the following question: How is the impact of
the reimplementation of this symmetrical AR regulation on JCI? Well, as I
discussed in the September
2016 article, when the 10% maximum decrease rule was eliminated, the market
would be crowded once again as the volume of stock transactions was no longer
limited by the rule. On the other hand, we will once again have the view that
certain stocks might fall to 15, 20 or even 35% in a day, but do not worry
because it will not happen to 'normal' stocks. However, on the JCI itself, the
new rules should not have any influence/the market will not become as fluctuated
ad in 2015, because although the IDX revoked the 10% decrease regulation, but
the regulator still prohibits the practice of short selling, and also still
tighten the rules of the use of margin funds, which caused, among others, the
fall of the Indonesia stock market in 2008. So in the end, still, there is
nothing to worry about.
Next week we will
discuss a little about the stock market outlook for the year 2017 and.. Hey!
Keep the spirit guys! It's January!
Original articles was written and published (In
Indonesian Language) in January 5, 2017. Any inquiries? Contact the author by
email, teguh.idx@gmail.com.
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