Changes in the Perception of Technology Companies on the Indonesia Stock Exchange

The Indonesia Stock Exchange or IDX is about to enter a busy period. After months of speculation, e-commerce company Bukalapak is poised to mark its debut on August 6, becoming the first Indonesian unicorn to be listed on the IDX. Most likely, other local tech giants such as GoTo and Traveloka will follow suit.

Investors welcome Bukalapak's move. This e-commerce company managed to collect USD 1,5 billion after setting its share price above the Rp 750-850 range, the biggest issue so far in Indonesia, according to sources consulted by Reuters.

The buyers of Bukalapak's IPO shares include long-term institutional investors, state wealth fund managers, and retail investors.

Increase confidence to take the floor on IDX

Because other technology companies such as GoTo Group, Traveloka, Tiket, and Kredivo reportedly planning to soon go public with schema dual listings in the US and Indonesia, the IDX is currently preparing new regulations to accommodate the technology sector. For example, Indonesia's stock exchange and financial authority, OJK, are reviewing new rules regarding multiple voting rights (MVR), which are intended to give existing shareholders more control over companies.

Draft regulations stipulates that the total assets for a company to implement MVR must be at least IDR 2 trillion (USD 138 million), while the business must have been in operation for at least three years. Shareholders with MVR, either individually or collectively, can only own up to 47,3% of the total shares. According to the new rules, if they own more than that, the excess MVR will be considered as common stock.

“The reason for implementing MVR is to give the founders greater control – who are people who hold key roles in the company – to maintain and realize the long-term vision and mission of the company after going public,” said I Gede Nyoman Yetna Setya, director assessment of the IDX company, via messages sent to local journalists via WhatsApp.

The new regulation is still being discussed by OJK and self-regulatory institutions such as the IDX, PT Kustodian Sentral Efek Indonesia (KSEI), Indonesian Clearing and Guarantee Corporation, and other stakeholders in the capital market.

Vishal Sridhar, a Southeast Asia analyst at The Economist Intelligence Unit in India, believes that the new lineup of major technology companies traded on the IDX will provide a significant boost to the stock market capitalization. It will also attract young retail investors and inspire other internet companies in the region to enter the local IPO market, he said.

“The coalition of abundant cash and the emergence of new retail investors in the low interest rate area further increased trading volume and triggered an unprecedented series of initial public offerings in 2020. We will see many startups from Southeast Asia enter the primary market in 2021– 2022 when the ecosystem has matured. Investors looking for exit while the next wave of tech companies is starting to emerge,” Vishal told KrASIA.

Tech stocks will add confidence to the Indonesia Stock Exchange, analysts believe. Documentation by Afif Kusuma via Unsplash

While the Asian region, in general, has been a key acquisition target for many SPAC companies, more capital market reforms are needed for regional exchanges to lure technology companies into the market. go public domestically, analysts say. “Exchanges like the IDX should take a step out of the Hong Kong guidebook and come up with independent market-friendly reforms related to different stock classes and specific frameworks for innovative companies, with low profit and income thresholds,” Sridhar said.

In line with Sridhar's optimism, Suresh Dalai, senior director of operations management at global business consulting firm Alvarez & Marsal, said that new technology stocks will help significantly improve IDX's perception of the stock exchange as a destination for IPOs. But, more importantly, it represents a significant increase in confidence in the Indonesian economy.

“Bukalapak is planned to be the largest IPO in history for IDX, which will enhance the brand of the stock exchange. The number and value of listings on the IDX last year decreased due to the pandemic, but the Bukalapak listing will encourage other companies to list and generate investment interest in 2021, pulling the IDX out of the 'sluggishness' in 2020," said Suresh.

High enthusiasm from retail investors

Based on KSEI data, there are 5,6 million stock investors in June 2021 in Indonesia, up 44,45% compared to the end of 2020 which was 3,88 million investors. Experts argue that these figures indicate increasing interest in the country's capital market. Chairman of the OJK Board of Commissioners, Wimboh Santoso, told local media that public interest in capital market instruments is a shift in spending from consumption to investment, thereby increasing demand in the financial market.

The CEO of wealth management platform Moduit, Jeffry Lomanto, told KrASIA that the enthusiasm of retail investors in hunting for technology-based stocks is currently very high, as can be seen from the "euphoria" for the shares of listed digital banks such as Bank Jago ( ARTO), Bank Capital (ROOF), and Neo Commerce Bank (BBYB) in the last year. "But in the end, investors will reconsider and analyze the match between the stock price and the company's valuation in accordance with its fundamental conditions," he added.

As Bukalapak will be the first unicorn to go public, retail investors are increasingly looking to own a part of the company, said Dalai of Alvarez & Marsal. He compared that to Sea Group's share price, which rose rapidly last year, making it the most valuable public company in Southeast Asia.

“Retail investors have seen an increase in online shopping since the pandemic and are seeing tremendous grounding in the e-commerce sector in Indonesia. The e-commerce market in Indonesia has grown more than five-fold between 2015 and 2020 and was up more than 10% amid the pandemic last year. I'm sure consumers will shop online more after the pandemic," said Suresh. “The fact that e-commerce companies such as Shopee and Bukalapak have achieved high valuations, despite significant losses, shows tremendous interest for investment from retail investors.”

Will this trend continue?

Jeffry of Moduit said that investors might buy stocks and experiment—partly because hyping but also because you don't want to be left behind. Investors at this stage are typically more intuitive than rational, more aggressive, and focused on wealth accumulation, he said.

“They are willing to try any investment instrument, especially if they are hyping. However, the types of investments that offer short-term returns, such as stocks, gold and crypto, are preferred,” he said.

Given the situation, it seems that investors' enthusiasm for technology stocks is likely to continue to increase as large Indonesian companies finally list their shares on the IDX. However, Jeffry avoided the risk of investing in unprofitable companies. “There are several considerations that can be made. First, we look at key growth drivers such as operating margins and cash flow. That way, investors can find out how expensive or low the company's valuation is."

Then, after experiencing a full market cycle, including profit and loss, investors will thrive, Jeffry said. They will be more serious about building a portfolio and more focused on preserving wealth. As a result, investment instruments such as mutual funds and bonds, which provide stability and long-term returns, will remain in demand, he added.

-This article was first released by KRASIA. Re-released in Indonesian as part of the collaboration with DailySocial