Riska Rahman, CMS – The recent stock market crash may have spooked foreign investors out of Indonesia, but domestic investors have swarmed and dominated transactions in the country's equity market, including a rush of interested first-time investors during the pandemic.
As of Tuesday, domestic investors have contributed Rp 612.1 trillion (US$42.4 billion), or 61 percent, of the total trading value since the beginning of this year, Indonesia Stock Exchange (IDX) data showed. They also dominated 76 percent of Tuesday's trading totaling Rp 5.5 trillion.
Jasa Utama Capital analyst Chris Apriliony said on Monday that local investors' dominance was caused by exiting overseas investors from the country's stock market and those who switched to other instruments like bonds.
"We should examine the motives for the exit of foreign investors, whether they are just switching to bonds or whether they have truly taken away their funds out of Indonesia. But if we pay attention, they are just switching [investment]," Chris told The Jakarta Post over a text message.
Foreign investors have dumped Rp 16.7 trillion worth of Indonesian stocks since the beginning of this year, while the Jakarta Composite Index (JCI), the IDX's main gauge, has lost 19.3 percent as of Wednesday.
The proportion of foreign ownership of shares dipped to 41.45 percent in June from 44.29 percent at the end of 2019, according to the IDX.
Meanwhile, foreign ownership of government bonds increased to Rp 934.8 trillion as of July 10, higher than the Rp 924.76 trillion recorded in April, Finance Ministry financing and risk management office (DJPPR) data shows.
The switch was caused by foreign investors' current considerations of the risks and returns of various financial instruments during this highly uncertain time, said CSA Institute director Aria Santoso.
Aria said that while the investors would opt for more stable alternatives in the short term, some overseas investors with long-term views remained in the country's stock market.
"They are considering the fact that Indonesia's growth potential is still much better compared to their own country of origin," he said.
Meanwhile, domestic investors' dominance might also be caused by rising interest from first-time investors in the stock market during the health crisis.
The number of single investor identification (SID) numbers rose to 1.2 million as of May 29 from 1.11 million at the end of 2019, according to IDX development director Hasan Fawzi.
Meanwhile, University of Indonesia (UI) stock market expert Budi Frensidy said the rise in new investors was caused by retail investors' switch from less risky assets, such as fixed income or time deposits, to stocks amid declining interest rates.
Bank Indonesia (BI) slashed its benchmark interest rate, the BI seven-day reverse repo rate, by 25 basis points to 4.25 percent last month – the third cut this year aimed at bolstering economic growth during the pandemic.
"Some of them have started to gain the courage to get into the stock market while share prices are low," Budi told the Post.
He was of the view that the dominance of domestic investors would have a positive impact as the JCI would be less volatile in the long run, especially if many of those investors were investing for the long term.
"More domestic investors means there will be less foreign hot money going in and out of the market, and this would make our index more stable."
Despite the fast-growing number of new investors, he said the IDX and the country's financial market regulators still have to continue raising the public's awareness of investing in the stock market to balance out the number of funds in the banking industry, which stands at Rp 6.13 quadrillion.
Chris of Jasa Utama Capital also suggested that all stakeholders help educate domestic investors, especially on the risks of investing their money in the stock market.