The Indonesian Stock Exchange (IDX) ended the year on a low note, with most shares trading below their valuation at the start of the year.

On Wednesday, the last day of trading this year, the Jakarta Composite Index (JCI), the performance gauge of the local exchange, closed slightly lower at 4,593 points. Down from 5,227 on Dec. 30, 2014, the index lost around 12 percent this year.

The price barometer hit a record high of 5,523 in April and tumbled to a low of 4,121 in August, a level not seen since the third quarter of 2013, as investors were worried about the condition of the global economy.

'€œA stock market weakening was experienced by most countries in the world. Generally, ours was still exuberant along the year,'€ the Financial Services Authority (OJK) chairman Muliaman D. Hadad said during the annual trade closing event.

With the sharp fall, the JCI became the worst-performing index in the Asia Pacific region throughout the year.

One of the reasons for this, analysts say, is the dominance of foreign players in the local stock market. Worries over the US central bank'€™s plan to raise its interest rate and China'€™s economic slowdown prompted many foreign funds to exit the local market.

Net foreign sales amounted to Rp 22.47 trillion, in stark contrast to the Rp 2.6 trillion of net purchases last year. The bourse'€™s market capitalization fell 7.5 percent year-on-year to Rp 4,834 trillion following the equity withdrawal.


Franky Rivan from KDB Daewoo Securities Indonesia recently noted that annual foreign net sales were a rare occurrence in Indonesia, having happened only twice in the last 12 years.

The bourse jotted down Rp 15.42 trillion of net sell in 2005; in 2013, sales exceeded purchases by Rp 20.65 trillion.

'€œWe notice that foreigners'€™ heavy net selling was triggered by the Fed'€™s tightening. According to our findings, the JCI demonstrated a high correlation to foreigner net purchasing trends.'€

Franky noted that starting in 2011, the JCI rally had been mostly driven by liquidity instead of fundamentals, which was shown by a broken correlation between share prices and return on equity (ROE).

'€œ[It] began with the US Federal Reserve'€™s quantitative easing program. Liquidity into the US market spilled over to emerging markets, including Indonesia, which manifested as foreign purchases in the JCI.'€

The gloomy year saw the bourse fall short of its targets, including a plan to list 32 new companies, with only 16 firms making their listing debut.

Earlier this month, the Federal Open Market Committee in the US unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent, ending the uncertainty around the zero-interest era. A host of Indonesian economic stimulus packages launched since September lifted investor sentiment, signaling better market conditions next year.

Credit Suisse, for instance, expects an Indonesian economic recovery in 2016 to be supported by the recently announced economic stimulus packages as well as pro-growth fiscal and monetary policies. The bank forecasts the benchmark JCI to reach 5,300 by the end of 2016, which would mark a nearly 20 percent upside from the current level.
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