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ompanies planning to enter the Indonesia Stock Exchange (IDX) this year face a mix of challenges, particularly given nationwide elections that could impact on business, market observers say.

IDX director for listings Hoesen, said although market optimism had picked up, a full economic recovery was still a stretch, making the initial public offering (IPO) target for this year flat.

'€œOverall, the situation this year will not significantly differ from last year. Our target for IPOs this year will be 30, the same as last year,'€ Hoesen said, adding the IDX eventually closed in 2013 with 31 IPOs.

BNI Securities head of research, Norico Gaman, agreed that '€œthis year would not be easy for companies planning IPOs'€.

'€œGiven the market condition, there'€™s a possibility that only 80 percent of the target will be achieved this year,'€ he said.

Aside from the economic conditions, another factor that may affect people'€™s interest in purchasing shares in IPOs could be the trading regulations recently passed by the bourse.

In a bid to lure more investors, particularly retail ones, the IDX reduced one lot size to 100 units from 500 units. They have also narrowed down the price fraction to a scale of three from the previous five. The bourse made the move to encourage long term investments.

Norico said however, that the new rules were a turnoff for short-term retail traders.

'€œThese traders are the ones tending to buy IPO shares as they can go back to selling these shares within a short period,'€ he said.

Universal Broker Indonesia analyst Satrio Utomo added retail traders'€™ interest in the market had waned as the new rules made it harder for them to turn a quick profit.

'€œAlthough the bourse passed the rule to encourage long-term investment, the problem is that roughly 75 percent of investors are this sort of speculator,'€ he pointed out.

Observers added another key factor influencing IPOs this year would be the general election. Indonesia is scheduled to hold a legislative election on April 9, followed by a presidential election on July 9.

Satrio said since 1992, the index had been on the upside in the election runoff period, given that elections signaled '€œnew hope'€ in national leadership.

'€œThe index has risen by approximately 33 percent from the beginning of the year to the voting day in the previous five general elections,'€ he said, adding IPOs held near the elections would benefit from this upswing.

However, Norico noted that if the elections went awry, companies would replan.

'€œIPOs will do well if elections go as planned but if they do not, companies will hold off their IPOs until conditions improve,'€ he said.

Hoesen further added that the bourse expected the majority of listings to pass in the first half of the year as companies generally utilized their December financial reports.

'€œLast year, approximately 23 companies used their December reports, besides March and June,'€ he said.

Meanwhile, IDX president director, Ito Warsito, said that companies seeking listing in 2014 included those in the banking and insurance sector.

'€œTwo banks are already scheduled for IPOs between [Jan.] 15 and 16, namely Bank Panin Syariah and Bank Ina Perdana,'€ he said.

Yet, Norico pointed out that companies in sectors sensitive to exchange rates, including banks, property and automotive, would appeal less to investors.

'€œAny rise in interest rates would pose as a risk for those in these sectors,'€ he said, adding that companies linked to domestic consumption would attract investors instead.