Investing in Indonesia Stock Exchange

Indonesian Stock Exchange (IDX) is on its way of becoming the biggest stock exchange in South-East Asia in terms of market capitalization, expected to pass Singapore in 2015. This would mean doubling the current market capitalization to $US 750 Billion . Let’s look in more detail why you should be interested in IDX and how to get started.

When I speak at investment seminars and discuss Indonesia, you can see the eyes widen and the pens picked up to jot down notes.[…] Over the past decade, it’s been the second-best performer amongst emerging markets, powering ahead with an average annual return of 25.2%.
Carl Delfeld

Performance of the Jakarta Composite Index (JCI)

Jakarta Composite Index, which is the modified capitalization-weighted index of all stocks listed in IDX,  has been showing strong growth in 2012, going up around 16% in the past 12 month to a historically high 4300 point level. Here’s the 3 year performance of JCI:

Here is the 2012 performance, until today:

Both graphs from Bloomberg.

Strong growth has been displayed by the construction and consumer-based companies, benefiting from the Indonesia’s solid economic performance and record level consumer confidence. In fact, Indonesia outperforms by far any other major economy when it comes to consumer confidence index, which peaked at 150 in November.

Here’s what an investment manager of a US $500 million equity fund focused on Indonesia says:

Consumers are heading up the value chain and using more expensive soaps and dishwashing detergents […] We’re seeing companies do well that reflect the rising income levels in Indonesia.

Bharat Joshi

Indonesia Exchange Traded Funds

There are currently three Indonesian Exchange Traded Funds (ETF) in New York Stock Exchange (NYSE):

Source ETFdb

Additionally you should look into Aberdeen Indonesia Fund (NYSEAMEX:IF) which has shown a significant 18.25% growth in year to date until today. More information about it can be found from their website.

Besides the aforementioned, there are several ETFs that involve Indonesian companies in their portfolios. Some of the bigger ones are:

• EGShares Consumer Goods GEMS ETF (NYSE: GGEM)
• Global X FTSE ASEAN 40 ETF (NYSE: ASEA)
• PowerShares Global Coal Portfolio ETF (NASDAQ: PKOL)
• Dent Tactical ETF (NYSE: DENT)
• Market Vectors Coal ETF (NYSE: KOL)

Trading in Indonesia Stock Exchange

Only brokers are able to trade in IDX, which means you will need to open an account with one of them. According to Indonesia Stock Exchange Website, there are currently 117 licensed brokers(full list here). Foreigners are allowed to open accounts and only need to present their ID card and fill application to get started.

Although broker fees somewhat vary, the usual rates are following:

• Buying stock: 0.25%-0.3%
• Selling stock: 0.35%-0.4%

Some brokers don’t require any minimum deposit, however usual deposit requirements are between US $1000- $5000. Selling stock is subjected to 0.1% income tax.

There are several brokers offering online trading, Expat Finder has compared three of them.

Other Stock Market Indices

Besides the aforementioned Jakarta Composite Index (JCI), which follows all the listed companies, there are several other indices that you can follow as investor. Here are some of the most noteworthy:

• LQ45 Index – follows the performance of the 45 most liquid companies listed, covering at least 70% of the transaction values.
• IDX30 – consists of 30 companies out of the LQ45 that are chosen by the IDX as the strongest and most liquid companies. IDX sees it as a basic reference for capital market products.
• Jakarta Islamic Index (JII) – includes companies that are in compliance with the Syariah business code but also in the same time rank among the top companies in terms of market capitalization and liquidity.
• Kompas100 – consisting of 100 companies chosen by the local newspaper Kompas based on the performance and strong fundamentals.
• FTSE/ASEAN – combined index of five ASEAN countries (Singapore, Indonesia, Malaysia, Thailand and the Philippines).

Besides aforementioned, IDX also has 3 more types of index, namely Individual Index, Sector Stock Price Index, Main Board and Development Board Indices.

Cover photo credit: Indonesian Embassy in Oslo