IDX chief Inarno Djajadi is determined to see the Indonesian bourse remain solid amidst election year and global volatility.
For the past decade the Indonesia Stock Exchange (IDX) has showed a stellar performance, with the composite index (IHSG) growing over 140% from 2,534 in end of 2009 to 6,194 in 2018. The stock market also enjoyed a bullish rally in 2018, hitting a historical record of 6,689 in mid-February.
However, the index soon started to slide downward and became unstable soon after investors sought for a safe haven in the wake of the U.S. Federal Reserve decision to normalize interest rates. It even nosedived to 5,633 in July, the lowest level since May 2017. The index has since not been able to fully recover from the drastic decline when the trading closed at 6,194 at the end of December.
The Fed is forecasted to raise its interest rates again this year in a move that could potentially put pressure on the IHSG and the rupiah. Chief Economist of Bank Central Asia (BCA) David Sumual predicted that tension from the trade war between the U.S. and China would exacerbate, further sending headwinds to the global market, especially emerging ones, including Indonesia.
“I think investors are still taking a wait-and-see stance over post-election government regulations,” he tells Forbes Indonesia, adding that all still depends on external factors. “But in 2019 the trend in the economy is downward.”
The newly-elected board of directors of IDX led by Inarno Djajadi faces formidable challenges, but they are determined to improve the index’s performance amidst a volatile situation marked by uncertainties in the global economy and the upcoming legislative and presidential elections. A note on the current board of directors: it comprises of members of several different “packages” registered at the Financial Service Authority (OJK). In the past, the norm would be for the OJK to choose one particular package of directors from the list. However, they made an exception this time by selecting board members from all packages offered.
In June the OJK appointed Inarno, 55, to replace Tito Sulistyo as President Director of the bourse for the 2018-2021 period. Inarno is not a new player in the capital market; he was previously IDX commissioner (2017) with previous stints as President Director, Commissioner and President Commissioner at the Indonesia Clearing and Guarantee Corporation (KPEI) in 2003-2016.
Inarno comes from a family of economists; his father was a lecturer at the Economics Faculty of Universitas Gadjah Mada, while three of the six siblings are also economists. However, he never had a keen interest in the capital market until he started to play the video game called Wall Street during his college years. He has since deepened his knowledge on how the bourse works by taking part in a series of trainings while finishing his undergraduate thesis.
“The capital market was not booming at that time. But at the time I graduated, the capital market had become a hot topic and my college degree was very valuable. Many companies sent me job offers,” Inarno recalls with a wide smile before sipping a cup of coffee at his office.
“That was my good fortune, the timing was perfect.”
Today, as the bourse’s prime officer, Inarno is gearing up the IDX to become a competitive exchange while providing the right kind of infrastructure that will allow efficient securities trading to all stakeholders. He is undaunted by the heavy challenges looming ahead and has not lowered the bourse’s target performance in 2019. He has set a conservative projection: at least 35 new company listings, 130,000 new single investor identifications (SIDs) and average daily transactions valued at Rp 9 trillion this year.
As of November 2018, 54 companies have already listed their stocks at the bourse, surpassing the target of only 30 listings. It also posted a record for highest new capital investors ever of 200,935 SIDs, growing 31.97% to 829,426 SIDs from 628,491 SIDs in 2017. Meanwhile, the daily transaction value has reached Rp 8.3 trillion, exceeding the target of Rp 8 trillion.
“We are optimistic because historically, in the 2004, 2008 and 2014 elections we didn’t see any downside effect at the bourse. It was stable and, in fact, even growing. So, we are daring enough to maintain our 2019 target,” he says.
Another reason behind the IDX’s confidence in their performance in 2019 is the implementation of the T+2 settlement cycle. The bourse has shortened the payment settlement cycle from T+3 to T+2 as of November 26. The change enables investors to receive shares they buy or money from stock selling within two days upon transaction. It also aims to boost fund circulation and liquidity in the stock market.
It took roughly two years for the IDX to prepare the T+2 settlement cycle, which began with a preliminary study in 2016 followed by a system upgrade in early 2018. Inarno says that for the transformation the IDX had upgraded its Jakarta Automated Trading System Next Generation (JATS NextG) while the KPEI and the Indonesia Central Securities Depository (KSEI), as self-regulatory organizations (SROs), had also upgraded their e-CLEARS system and C-BEST Next G.
“Besides to increase [trading] capacity, the upgrades were meant for the T+2 settlement cycle,” he says.
Indonesia is the third country in Southeast Asia besides Thailand and Vietnam that applies the T+2 settlement cycle, following the footsteps of other stock exchanges in developed countries such as South Korea, China (Hong Kong), Australia, the United Arab Emirates, the U.S. and Canada.
Inarno also plans to launch additional services to enhance the stock market. He said the IDX would launch an electronic trading platform for bonds and the Indonesian Government Bond Futures (IGBF) in cooperation with the Bond Market Development Team (TPPSU), as well as adding a free float adjusted index method to LQ45 and IDX30 indexes in February. The bourse is also set to provide a virtual trading simulator this year to increase public awareness on the stock market and encourage them to invest.
William Surya Wijaya, Vice President Research Department at PT Indosurya Bersinar Sekuritas, says the implementation of the T+2 settlement cycle provides a more sustainable environment for investment.
“They [investors] will invest once they have money instead of borrowing money to invest and speculate on an investment, which is what usually happens with the T+3 settlement cycle,” he says. “The T+2 settlement cycle will allow investors to make wise speculative decisions on the basis of company performance.”
He also believes that the IHSG will break another high record of around 7,675 this year because whoever is elected as president would bring certainty to the market. In facing the challenges that cloud the stock market and economy projections next year, Inarno chooses to focus on building resilience by luring more domestic investors and improving IDX services.
According to IDX data, in October foreign investors still dominated the equity market with 52.27% ownership compared to 47.73% on the part of domestic investors. However, domestic investors are more progressive in trading activities (62.19%) compared to their foreign counterparts (37.81%).
“External factors are a given and beyond our control. It is more important to build resilience,” Inarno says.