The Indonesian financial markets have shown a remarkable recovery from the Asian Financial Crisis in the 1990s. Prudent fiscal management and strengthening economic fundamentals were behind Indonesia's robust economic growth from the mid-2000s (although the global economic slowdown and low commodity prices caused Indonesia's economic slowdown in the years 2011-2015). Meanwhile, Indonesia's benchmark Jakarta Composite Index, which encompasses all stocks listed on the Indonesia Stock Exchange and therefore can be regarded the main indicator of financial market performance in Indonesia, has been experiencing substantial growth since 1999 up to the present. This index suffered a record low in 1998 and a record high in January 2018.
Indonesian Bond Market
Besides the stock market, Indonesia’s bond market has also grown steadily over the past years and now also offers a more diversified array of debt instruments (important to attract a broader investor base). In recent years the central government of Indonesia has specifically increased its focus on Islamic finance (which includes Islamic bonds, or Sukuk). Considering that Indonesia has a large Muslim population while Islamic finance is underdeveloped, this sector has great potential.
The Indonesian government is the biggest bonds issuer in Indonesia (it usually sells debt paper in order to finance the annual state budget), both to local and foreign investors. Its array of debt paper includes conventional, retail and Islamic bonds. Indonesia's central bank (Bank Indonesia) also issues Bank Indonesia Certificates (SBIs) that are available to foreign investors. Although government and corporate bonds are listed on the Indonesia Stock Exchange, these instruments are usually traded over-the-counter.
Credit Ratings & Foreign Confidence
Indonesia received investment grade status from all three key international credit rating agencies. In late 2011 Fitch Ratings was the first agency (out of the big three) to reinstate Indonesia's investment grade status after a 14-year hiatus. In January 2012 Moody's Investors Service followed suit citing the country’s resilient economy. And, finally, in May 2017 Standards & Poor's upgraded Indonesia's status to investment grade. That these upgrades encourage more capital inflows into Indonesia as a number of global funds can only invest in investment grade economies only. Overall, investment grade status improves investors' confidence in the fundamentals of the Indonesian economy.
Shallow Capital Markets
It will be important, however, that this robust expansion is accompanied by a deepening of Indonesia's capital markets. Currently, capital markets in Indonesia - Southeast Asia's largest economy - are smaller and less liquid compared to other ASEAN countries and emerging markets. This is due to the low capital market utilization to finance investments and limited intermediation by non-bank financial institutions (modest hedging and insurance facilities). Securities and equity markets are relatively underdeveloped and market capitalization of Indonesia's listed companies is lower than that of its regional peers. On the positive side, it means that Indonesia has ample room for growth.
To deepen Indonesia's capital markets, it is also important that the nation's banking sector develop more rapidly. Currently, financial literacy of the Indonesian population and the country's banking penetration (both conventional and Islamic) remain at a relatively low level. Based on data from the World Bank, less than 40 percent of Indonesia’s adult population owns a bank account.
This section focuses on the Indonesian financial markets. It aims to provide insight into the structure of these markets and contains ample information about how to participate in these markets.
Our Financial Columns offer analyses of topics related to the Indonesian financial markets. It aims to provide the reader a clear and thorough insight into the structure of Indonesia's existing financial climate. These columns are written by our team of economists working for authoritative institutions who possess expertise and experience to expound upon financial subjects that also have high news value.
Stock Market Update
Our Stock Market Update section contains a daily analysis of the performance of Indonesia's benchmark Jakarta Composite Index (IHSG). It provides insight into the movements and trends of the IHSG index and deals with the major players and factors behind those movements. As the IHSG index can be regarded as the main indicator of the Indonesian financial market performance, comprehension of this indicator is an important matter.
Stocks & Bonds
Our Stocks & Bonds section contains all necessary information for foreign investors who are interested in buying Indonesian stocks and bonds. In recent years the Indonesian stock exchange has performed well due to large share acquisitions by both domestic and foreign investors. Moreover, foreign ownership of Indonesian government bonds and Central Bank notes has also shown a sharp increase. As Indonesia has received upgrades in its credit ratings, these markets are expected to expand further in 2016 and beyond.
The Indonesian tax system is not the country's most effective and clean field of governance. It is advised to have a comprehensive understanding of Indonesia's tax system to avoid any possible future disputes with the tax department. Such disputes can have consequences for the operations of your business and for your private situation. This section informs about corporate and individual income tax as well as the government's tax amnesty program that was launched in July 2016.
The Macroeconomic Indicators section informs about the important macroeconomic ratios and social statistics (such as inflation, gross domestic product and unemployment), that provide useful insight into the current state of the Indonesian economy. An analysis of these statistics can show certain longer and shorter-term economic trends and are therefore useful tools to accurately assess the future performance of Indonesia's economy.
This section contains contact details of institutions that can provide further information and assistance with regard to Indonesia's financial markets. If a particular institution that you are looking for is not listed in this section you can contact us here for further information.