How to Invest in the Indonesia Market and Stocks

How does the Indonesia market work?

While it may not be the first thing that comes to mind, the Indonesian stock market is growing and could be a great choice when you’re seeking out a new investment for your money. Because it’s a lesser known market, you will be more likely to find a great investment opportunity, if you do your research as there will not be as many people looking in the same places as you.

One of the best things about investing in Indonesia is that your broker is very likely to be already set up for you to trade in this market without any extra forms or additional fees.  Investing in Indonesian equities will help diversify your portfolio and boost the chances of positive performance.

How it works

The Indonesia Stock Exchange is based in Jakarta and has over 450 different companies listed on it for you to invest in covering a wide range of sectors. Unique to the Indonesia equity market are the trading hours – which include a lunch hour and also a longer lunch hour on Fridays only. The normal trading hours on Mondays to Thursdays are from 8 am to 1230pm with a lunch hour from 1230pm to 130pm, followed by an afternoon trading session from 130pm 530pm. However, on Friday, trading hours are from 8 am to 1130am, with a lunch hour from 1130am to 2 pm, followed by an afternoon trading session from 2 pm to 530pm.

Trading in this market can be quite convenient for you as a Singaporean investor – as there is only a 1 hour time difference between you and the Indonesian market. When the market opens in Jakarta at 8am it will actually be 9am in Singapore. The lot size, i.e. minimum trade order size is 100 shares in the Indonesian market and trades can be executed through most local Singapore stock brokers.  The stock market in Jakarta has undergone a significant phase of development since the 1990s and now is fully automated and electronic making it convenient and easy to use for investors across the globe.

Major Sectors

Although the market covers a broad range of sectors, the biggest sectors are in telecoms, construction and banking and finance.  Unique to this market is that a lot of the larger companies are state owned. Out of the over four hundred companies listed in this market over a quarter of the market value is made up of around 20 state-owned companies. The biggest stock in this market is also state owned – Telkom, currently trading at 955 IDR.

Major Indices

The two biggest Indonesian stock market indices are the Jakarta Composite Index (JSX) and the Jakarta Islamic Index (JII). The JII acts as a benchmark for measuring market activity based on Sharia (Islamic law) and has 30 stocks listed on it.  As the world’s most populous Muslim-majority nation, Islamic law features a lot in finance and investments in Indonesia. The JSX is an index of all stocks that trade on the Indonesia Stock Exchange.

Other important indices for the Indonesian market are the FTSE/ASEAN Indices.  These have been launched to provide regional exposure to the five ASEAN exchanges (Singapore Exchange, Bursa Malaysia, The Stock Exchange of Thailand, Jakarta Stock Exchange, and The Philippine Stock Exchange) in conjunction with the global index provider – FTSE. These indices cover the five ASEAN markets and provide exposure to the region on a wider scale.

What should you look out for?

When investing in Indonesian equities keep in mind that your investment can be affected by local factors – such as economic and political change in the region. The primary difference when investing in the Indonesian equity market is the currency. You will be buying and selling equities in Indonesian Rupiah. Your broker will convert your Singapore dollars for you, but the rate is constantly changing. Most brokers in Singapore now provide multi-currency accounts. This will help you to monitor the currency changes involved with your Indonesian equity investments, and this incurs lower charges when exchanging your money.

Keep an eye on the exchange rate when making your investment decisions as it will affect your investment performance – sometimes for the better and sometimes for the worse. Likewise, remember that there are risks involved in equity investing. If the company goes bankrupt, whether local or foreign, you risk losing the total amount you invested.

Keeping track of your equity portfolio

It is not a good idea to put all of your money into a single investment as you risk losing all of this if that one company goes under. You will not ever lose more than this amount – but you want to prevent any loss as much as you possibly can.  Spread your investments over a variety of investments to help generate a higher return and minimise the risks to your portfolio.

The stocks in the Indonesian market and lesser known and smaller in size when compared to investing in bigger, Western markets.  This can mean higher risk to your money, but also it will also mean you are more likely to come across a cheaper investment opportunity – giving a better return in the long run.