As Indonesia’s economy booms, its president wants to persuade its companies to list in Jakarta and to deepen its capital markets.
‘Don't let other countries be the one profiting. Why would you plant here but be listed in Singapore, Hong Kong or New York?’ President Joko Widodo said in a speech at the Indonesia Stock Exchange on Tuesday.
Indonesia, Southeast Asia’s largest economy, is expected to grow more than 5% for the second year in a row in 2017. In May, S&P Global Ratings raised Indonesia’s sovereign rating to investment grade, the last of the three major rating agencies to do so.
However, the stock market has not developed at the same pace. Major Indonesian corporates, including the large commodity companies that are major drivers of the economy, are listed overseas, mainly in Singapore.
‘The main challenge is the lack of large equity investors in the Indonesian market. Companies want to list in markets where there are large domestic participants that can act as anchors for the stock,’ Jalil Rasheed, investment director of Asian equities at Invesco, said in an email response to Citywire Asia.
The legal landscape in Indonesia is also not fully developed, Rasheed said, adding that this is a widespread challenge for emerging markets.
‘Companies tend to prefer listing in Singapore because the legal system is world class and any disputes get settled quickly,’ he said.
Rasheed said that while the commodity stocks that have been a major part of Indonesia’s growth have had a good run, they are cyclical, meaning that their performance is not sustainable.
‘My wishlist [would] be more liquid consumer names coming on to the market which is a better reflection of Indonesia's positive economic growth, which is led by the boom of the middle class market spending power,’ he said.
Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Asset Management said in a phone interview with Citywire Asia that he is ‘constructive’ on the longer term development of the market, due to its large youth population.
‘Whether they can translate into good resource of manufacturing is a question mark,’ he said. ‘Though they could be faster, they are progressing well… The Indonesian government has been putting lots of efforts and support through measures and policies.’