The Indonesia Stock Exchange (IDX) aims to double the current market capitalization to US$750 billion by 2015 to overtake Singapore as Southeast Asia’s biggest stock exchange. In an interview with The Jakarta Post’s Esther Samboh, IDX president director Ito Warsito unveiled ways to achieve the target, including recent developments in the bourse. Here are excerpts of the interview:
Question: Indonesia’s stock market has been growing rapidly, especially since the 2008 crisis shifted global investors’ attention to emerging markets. How do you see the market growing in the near future?
Answer: Our 2012 target for market capitalization was achieved in 2010 at Rp 3000 trillion. Now we have set a new target because we see that by 2012, the market value could reach $750 billion, the biggest in Southeast Asia. Now we are No. 2 after Singapore, and we are in close position with Malaysia. The target could be achieved through two ways. First, organic growth. With an increase in corporate earnings, stock prices will soar. Second, newcomers to the bourse. The IDX has three business groups targeted to float their shares on the bourse. The first one is state-owned companies and the second is those that control Indonesia’s natural resources — mining, oil and gas, as well as plantations. We want PT Newmont Nusa Tenggara and PT Freeport Indonesia, among others, to be listed on the IDX. The third is companies that are big borrowers in the banking industry; those that receive big loans from banks.
Will we also see a surge in trading transactions?
We target 2012’s average daily transaction at Rp 5.8 trillion. There are quiet months and peak seasons. Like January and February, they are low season, that’s why the Rp 4.6 trillion in average daily trading transactions so far this year has been good compared with the average of previous years. The increase in trading hours is not aimed at increasing the value of trading transactions, but to increase the time alignment between regional main bourses, Singapore and Hong Kong, and Indonesia. Time alignment is important because Indonesia’s bourse’s market opening has been determined by Hong Kong’s and Singapore’s performance. Once they slide, we will too. Fund managers used to place us after Singapore and Hong Kong. So they think of buying or selling strategies in Hong Kong and Singapore first, then Indonesia. We want them to think about Hong Kong, Singapore and Indonesia since the morning, so that our market opening is no longer dictated by movements in Singapore and Hong Kong.
The IDX announced early last year its intention to extend trading hours by opening 30 minutes or an hour earlier. Will we see that happening soon in the second half?
Yes. The exact time extension will depend on Bapepam (capital market regulator). An hour or half an hour is irrelevant, it’s only about the opening bell that gets the system going. But we need to adjust with the new systems first, which may take three to six months to adapt to.
We are currently implementing new systems, including the reporting system for adjusted net capital and separation of customers’ accounts. Once we have successfully implemented these new systems, then we can think of changing trading hours.
You previously mentioned trading being dominated by local investors, although in terms of stock ownership, foreign investors still controlled it. Will that trend continue?
Domestic potential is huge. Throughout last year, domestic investors dominated trading with a share of 64.5 percent, so foreign investors, in terms of trading, only contributed 35.5 percent, though as of the end of December, foreigners still owned 60 percent of publicly traded stock on the IDX. This phenomenon shows that domestic investors have been traders, not long-term investors like foreign investors. In the past five years, foreign investors have been increasing their investments in Indonesia, they never pull out permanently, including through the 2008/2009 crisis.
Morgan Stanley’s Indonesian flag went to the IDX to announce its intention of taking over Tiga Pilar Sekuritas’ brokerage seat. When will we see Morgan Stanley officially carrying out its brokerage function here?
I can say within this first half of this year, but I cannot announce Morgan Stanley’s timeline. There are several things that a securities house must do to operate as a bourse member before we issue a brokerage license, namely operational readiness, management, staffing system, including standard operating procedures (SOP), etc. We are conducting an audit to ensure those things and then afterward we can issue the brokerage license.
Has there been other international interest in being an IDX bourse member? Sources have mentioned Japan’s Nomura and Daiwa Securities, as well as the US’ Goldman Sachs, can you confirm that?
Interest has been expressed to the IDX, from the United States and Japan, but I cannot disclose the names because they have yet to submit official letters. If they want to operate as a brokerage here, it would be no problem for them to buy a seat from stock exchange members. There are currently four suspended bourse members because they do not meet capitalization standards, namely Dinar Securities, Bapindo Bumi Sekuritas, Jakarta Securities and Finan Corporindo.