Indonesian capital market’s stellar performance in 2009

The year 2009 closed with a stellar performance by the Indonesia Stock Exchange. The stock market index was up 85.85 percent, ranked second after the Shenzhen Stock Index, which increased by 115.27 percent, and ahead of other Asian stock indices such as Mumbai, Shanghai, Hong Kong and Singapore.
The climb continued unabated until the second day of trading of 2010, on Jan. 5.
In fact, the index crossed the 2,600 level on that day, marking a new psychological high. The stellar performance in 2009 was a complete reversal from the performance in 2008, when stock markets all over the world tumbled.


The financial crisis that started in the United States spread all over the globe, including to Indonesia.
The abrupt reversal in foreign capital inflows in the preceding period, or de-leveraging, created a wholesale redemption of their investment, including in Indonesia, such that the market became too unbalanced. There was too much supply and not enough demand.
In Southeast Asia, the Indonesian capital performance ranked first, followed by Thailand, the Philippines, Singapore and Malaysia. In terms of market capitalization, the capital markets of Singapore and Malaysia continued to top the region, while the Indonesian market closed the gap on both of them.
In the stock market index, for instance, the Indonesian stock exchange was up 254 percent in the last five years, from the level of 1,000 at the end of 2004, to 2,534 at the end of 2009.
Meanwhile, the Malaysian index increased from 907.43 at the end of 2004 to 1,271.12 at the end of 2009, or an increase of only 40 percent. Singapore, meanwhile, increased from 2,066 to 2,880 in the last five years, or an increase of only 39 percent.
The Indonesian market shares the characteristics of the Mumbai Stock Exchange, which increased 263 percent, from 6,602 at the end of 2004 to 17,343 by the end of 2009, and the Shanghai Stock Exchange, which increased by 258 percent from 1,266 to 3,262 in the corresponding period.
With such rapid growth in the Indonesian stock market in the last five years, especially in 2009, what will be the prospects for the market in 2010 and beyond? There are several forces that work positively for the Indonesian stock market.
The first is the growing power of Indonesian investors. In the Indonesian banking system, the
total assets of the banking system have almost doubled in the past five years, higher than the growth rates of other Southeast Asian countries, which marks the power of the Indonesian market for financial products.
Such power spilled into the capital market by the increasing awareness of Indonesians of the benefits and risks of investing in the capital market.
At the same time, Indonesian insurers, pensions funds, mutual funds and other institutional investors have also risen fast to become the backbone of the Indonesian investor.
At a time when foreign investors fled the country due to the recent de-leveraging process, the Indonesian stock exchange continued to thrive, albeit at a lower level, displaying the strength of Indonesian investors. When foreign investors returned, the additional demand on the stock market made the rebound very swift.
The second force is the rise of the Indonesian middle class. In a previous article, I discussed the fast-growing size of this class.
Based on criteria from AC Nielsen, the Indonesian middle class is now at least 30-million-strong, larger than the entire population of Malaysia. In fact, by 2015 we may see the size of the middle class double.
That projection will guarantee the growth of returns for Indonesian companies. At the same time the middle class will form a very strong community of investors.
Thus, from both demand and supply, the Indonesian middle class will create a formidable power for the Indonesian stock market and also the Indonesian economy.
The third factor is the huge potential for new supply from initial public offerings. Thirteen new companies listed on the stock exchange in 2009.
Meanwhile, many Indonesian companies are still not listed. In fact, of the more than 100 state-owned enterprises, only a few have been listed.
In the coming years we will see big names such as Garuda Indonesia, PT Pertamina, PT PLN — which have transformed into more transparent companies in recent years — list on the bourse. Of the private companies, we have seen many big names continue to be held in private hands.
In fact, no Indonesian airlines are listed on the stock exchange, while we see many fast-growing companies such as Lion Air, Mandala Airlines, Batavia Airlines, Sriwijaya Airlines and many others.
With such forces we can predict the Indonesian stock market will continue to thrive in the next few years.
This also reflects the potential of the Indonesian economy. The Indonesian government is quite optimistic about achieving economic growth of around 6 to 7 percent in the next few years. That performance will enable it to reduce the level of poverty and unemployment significantly.
That level of economic growth will also create a bigger potential for the Indonesian stock market to grow faster. Media and banking entrepreneur Chaerul Tanjung has predicted “golden years” in the next decade.
A CFO from a prominent multinational said that in the next five years we will see a boom in the economy. I share with the two gentlemen their faith in the Indonesian economy in the coming years.
Against that backdrop, the predictions for the stock index in 2010 become a very technical issue.
However, I will not be surprised if the level of 3,000 — uncharted territory for the Indonesian stock market index at the moment — may be fast approaching.


Cyrillus Harinowo Hadiwerdoyo, The writer is an economist.
 Opini Republika January 11, 2020