How to invest in Indonesia stocks: Jakarta composite index bucks’ global trend, buoyed by tech and state-owned firm IPOs

Indonesian stock market screen.
Indonesian stocks outperform global peers amid booming IPO landscape. Photo: Triawanda Tirta Aditya / Shutterstock

The Indonesia stock market is among few markets in Asia that have been defying the global market decline. The IDX Composite Index has outperformed its peers, including the Asian financial market bellwether Japan’s Nikkei 225 (Japan225), amid tightening cycle by central banks and looming recession.

The stock market has seen some of the biggest initial public offerings (IPO) in IDX’s history in 2022, including from decacorn and unicorn technology start-up companies.

As the country expects to see more big fund-raising from IPOs, we look into how to invest in Indonesia stock market. Here we assess the country’s shares performance in 2022, explore what options are available for investing in Indonesia and what are the risks surrounding Indonesia stocks.

Indonesia stock market overview

Before learning how to invest in Indonesia, let’s take a look at the country’s stock exchange and major stock index.

The Indonesia Stock Exchange (IDX) is the primary exchange in the country, which dates back to its beginnings to 1912, when the Dutch Colonial established the country’s first stock exchange before independence. The exchange, however, had a series of inactivity, but was fully re-activated in 1977.

It was named the Jakarta Stock Exchange (JSX) until it was merged with the Surabaya Stock Index in 2007 and became the Indonesia Stock Exchange (IDX). The Jakarta Stock Exchange Composite Index was renamed into the Indonesia Stock Exchange Composite or IDX Composite, a market-capitalisation weighted index.

Finance carried the most weight in the IDX (36.2%), followed by infrastructure (11.5%) and energy (9.8%), as of October 2022. The top five constituents included the Indonesian largest bank by market value Bank Central Asia (BCA), state-owned lender Bank Rakyat Indonesia (BRI), state-owned telecom firm Telekomunikasi Indonesia (Telkom), and Bank Mandiri.

The ten companies account for 51% of IDX’s market capitalisation with a combined value of IDR 1,427.22 trillion, as of October 2022.

Indonesia stock market performance

After falling about 5% over 2020 during the Covid-19 pandemic, IDX recorded a 10% rebound in 2021. As of 14 November, the IDX Composite Index stood at 7,033. It was about 3.4% below its all-time high of 7,377.50 on 15 September 2022, but has gained about 6.9% year-to-date (YTD).

IDX Composite index, 2017 - 2022

Booming number of IPOs

Those looking to invest in Indonesia stock market may have more companies to choose from as the country’s IPO numbers are soaring. Over 2021, the country’s capital market recorded a total IPO value of IDR 62.5trn ($4.023bn), the highest fundraising value for public offering in the Southeast Asian region, according to the IDX statement.

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There were a total of 53 new shares listed in 2021, IDX data showed. From 2018 to 2021, the stock exchange had 217 new listed companies, making the highest new share listings in Association of Southeast Asian Nations (ASEAN) for four consecutive years.

The growing number of listed companies was the result of revamp in regulations that aimed to encourage more companies, including start-ups and state-owned, to raise funds from the country’s capital market.

As of 10 November, IDX has recorded 54 new share listings in 2022, exceeding 2021’s total IPO and bringing the total number of listed companies to 820. New listings include the landmark IPO of e-commerce and ride-hailing platform GoTo Gojek Tokopedia in April, which raised more than $1bn. It was the third largest IPO in Asia and fifth largest in the world, with 300,000 investors participating, the highest in IDX history. As of October 2022, GoTo Gojek was the sixth largest company on the IDX index.

In early November 2022, IDX recorded the second biggest IPO with the listing of Global Digital Niaga, the operator of e-commerce platform Blibli. The company raised more than IDR 7trn ($450.86m).

In the latest Indonesia stock market news, investors are watching closely the upcoming listings of two state-owned companies: Pertamina Geothermal Energy (PGE), a geothermal subsidiary of state-owned energy company Pertamina; and Sugar Co, the sugar mills subsidiary of state-owned plantation firm Perkebunan Nusantara.

Both companies have not formally released prospectus, but local media Kontan reported that PGE could raise IDR 8trn ($515.73bn).

How to invest in Indonesia stock market

Domestic and foreign investors seeking to gain exposure to the Indonesia stock market have several options of how to buy Indonesian stocks.

Indonesian stocks

Investors can buy individual Indonesian stocks directly via stockbrokers or online trading platforms. International brokerages also offer a range of portfolios of Indonesian stocks.

US investors can buy Indonesian shares that are traded on US markets – US exchanges or over-the-counter (OTC) – through American Depository Receipts (ADR).

Indonesian state-owned telecommunication company Telekomunikasi Indonesia, or Telkom (ADR: US-TLK) ADR, which is traded at the New York Stock Exchange (NYSE), was the only Indonesian company traded in formal US exchanges, as of 5 November.

Meanwhile, Indonesian ADRs traded at US OTC included state-owned lender Bank Rakyat Indonesia (BKRKF), lDX-listed energy company Medco Energi Internasional (MEYYY),and Bank Mandiri (PPERY)

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Indonesian index ETFs and mutual funds

Index-tracking exchange-traded funds (ETFs) and mutual funds are available for those who favour passive investing approach, without the need of picking individual companies. Investors can choose funds that track the performance of the IDX Composite Index or the blue chip LQ45.

ETFs trade on stock exchanges in the same way that regular stocks do. Investors in them are entitled to dividends and capital gains based on the number of shares they own in the fund. Mutual funds are similar to ETFs, yet trade only once a day after the market closes.

How to trade the Indonesian stocks with CFDs

Contracts for difference (CFDs) may provide an alternative way of gaining exposure to Indonesian stocks. A CFD is a derivative contract that allows to speculate on the price direction without owning the underlying asset, by going long or short.

Using CFD, a trader can open a bigger position with less capital using leveraged trading, borrowing the rest of the sum from their broker. However, it should be noted that leverage magnifies both profits and losses. There is a risk of a margin call if a share price moves against your trade.

Capital.com offers CFDs for a range of Indonesian companies, from state-owned companies, such as Bank Mandiri (PPERY) and Bank Rakyat Indonesia (BKRKF), to private companies, including telecommunication tower operator Sarana Menara Nusantara (SMNUF).

For example, the margin provided for Bank Mandiri (PPERY) CFDs is 20%, or 5:1 leverage. In other words, a trader can open a PPERY position worth $1,000 with only $200.

Trade PT Bank Mandiri (PPERY) CFD

The overnight fees make CFDs more commonly used for short-term trading. Before opening a position, traders should be careful to fully understand the risks involved in leveraged.

Typically, traders who want to open a CFD position need to fund a margin deposit that equals a portion of the trade’s total value. A trader must keep the so-called maintenance margin, or a certain minimum balance in their account, in order to keep a leveraged trade open.

Risks surrounding investing in Indonesia

There are several risks associated with investing in Indonesia, ranging from macroeconomic climate, local political development, currency risks, and more.

Inflation risks

Inflation in Indonesia was recorded at an annual rate of 5.71% in October, cooling from 5.9% in September. However, it remained above Indonesia’s central bank’s target of 3% for 2022 on rising commodities prices, particularly food prices.

Inflation could reduce consumers’ spending which may hurt stocks, particularly growth stocks.

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Weakening rupiah

The Indonesian rupiah (IDR) has continued to depreciate against the US dollar (USD) as the US Federal Reserve (Fed) continued aggressive monetary tightening. As of 14 November, the USD/IDR traded around IDR 15,500 per US dollar, gaining more than 9% year-over-year (YoY).

A weakening rupiah could raise production costs for companies that have a significant portion of raw material imports. It could also increase debt servicing costs for listed companies that have US dollar debt. However, it would bode well with export-oriented companies, although recession risks in Indonesia’s main trading partners could offset that benefit.

Presidential and regional elections in 2024

Indonesia will hold presidential and national-level legislative elections simultaneously on 14 February 2024. While it is still a couple of years away, investors have been watching closely as President Joko Widodo will complete his second and final term of his presidency. President Jokowi, as he is affectionately called, has been favoured by investors since he was first elected in 2014.

It will also be the first time that Indonesia holds nationwide regional elections, with Indonesians voting for the heads of regional governments and legislators at the same time as the presidential election.

​​Security risks

Indonesia has been battling terror attacks for two decades, which makes investors still view the country as one with high security risks.

Some of the deadliest attacks included a car-bombing at the Indonesia Stock Exchange building’s parking lot in May 2000 followed by the Christmas Eve bombings in the same year and the first Bali bombing, which killed more than 200 people in 2002. The latest attack was a bombing of a church in Surabaya, East Java, in 2018.

The country ranked 24th with the total score of 5.5 in the 2021 Global Terrorism Index, up from 37th with the total score of 4.629 in 2019. The Institute for Economics and Peace’s index assigns a score of 0 to 10 to each country, with the number 0 representing no impact from terrorism, while 10 indicating the greatest measurable impact.

The bottom line

Before buying or selling Indonesia stocks, we strongly advise traders to conduct their own due diligence by reviewing the most recent news, a broad selection of analyst commentary, technical and fundamental analysis.

Traders should be aware of the risks associated with Indonesian equities and the use of leveraged instruments such as CFDs. More importantly, it is critical to recognise the inherent volatility of financial markets.

Remember that past performance does not guarantee future returns. Never trade money that you can’t afford to lose.

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