The Indonesia Stock Exchange (IDX) has had an excellent run during the last a number of years. Since 2015, market capitalization (the overall worth of firms traded on the trade) has grown by a mean of 12 p.c yearly, reaching an all-time excessive of $748 billion on the finish of final yr. From 2022 to 2023 alone, market cap elevated by 23 p.c.
That is particularly fascinating provided that the U.S. Federal Reserve started elevating rates of interest in 2022. Based mostly on what we learn about how international capital flows work, we would have anticipated Indonesian shares to take successful as buyers bought equities in rising markets and moved into supposedly safer belongings like U.S. authorities bonds. That didn’t occur, and Indonesia’s inventory market continued rising regardless of excessive rates of interest in the US.
Neighboring exchanges have fared much less properly. The SGX in Singapore noticed its market cap shrink by 3 p.c in 2023, ending the yr at round $599 billion. Thailand’s SET contracted 17 p.c, all the way down to $487 billion. The Malaysian trade, Bursa Malaysia, grew by 4 p.c between February and December 2023, however at $364 billion it closed the yr with lower than half the market cap of the IDX.
Two huge IPOs helped buoy the IDX in 2023. PT Amman Mineral Internasional, which operates Indonesia’s second largest gold and copper mine on the island of Sumbawa, listed on the exchange and ended the yr with a market valuation of round $30 billion. Barito Renewables, which operates plenty of geothermal energy crops, also listed and noticed its inventory worth skyrocket to a very unsustainable degree earlier than finally correcting and falling again all the way down to earth.
Whereas these two IPOs added tens of billions of {dollars} to the IDX market cap, there are different extra systemic elements underpinning the trade’s development. Growing domestic capital markets, together with bond and inventory markets, has been an vital precedence throughout the administration of outgoing President Joko Widodo. Deeper home capital markets make development extra balanced and sustainable since you aren’t pressured to depend on a single supply or kind of capital like international funding or lending.
Getting extra firms to faucet the IDX to lift funds has been an vital a part of the federal government’s financial growth technique, and Jokowi surrounded himself with a succesful workforce of financial policymakers who’ve helped put this plan into motion. From 2020 to 2023, 190 new firms listed on the trade. This consists of extremely publicized blockbusters, like know-how firm GoTo, however there have additionally been many smaller companies doing modest IPOs. As these firms develop, so does the trade’s market cap.
One other fascinating a part of this story is that almost all – about two-thirds – of all transactions on the IDX are finished by home buyers, relatively than international. This can be a part of the rationale why the Indonesian trade wasn’t hit as arduous when rates of interest went up in the US. Even when international buyers bought off Indonesian equities to chase larger rates of interest within the U.S., there may be apparently a sufficiently massive class of home buyers in Indonesia who had been in a position to take up the sell-off. This can be a good factor for Indonesia’s long-term monetary stability.
So as to preserve this momentum, regulatory supervision of the monetary sector will turn out to be more and more vital. Indonesia has not at all times had the most effective popularity in terms of regulatory oversight. However as home capital markets deepen and play a much bigger position within the nation’s financial growth, policing fraudulent and corrupt practices turns into a matter of nationwide curiosity. That is one thing the incoming administration of Prabowo Subianto (which is probably going to herald a brand new financial administration workforce) might want to maintain a detailed eye on, particularly because the IDX on its present development trajectory might cross $1 trillion in market capitalization within the subsequent few years.
