1000%, or sometimes even more. That＊s how much of a jump some?Indonesian stocks have witnessed in the past 3每4 years. But they are both?mysterious and unexplained gains?in?Indonesia's nearly $640 billion stock market, which are thus increasingly fueling calls for tighter regulation in Southeast Asia＊s biggest equity market.
Known as ※deep-fried§ shares among local traders, they often have concentrated ownership, low trading volume, scant analyst coverage, and elevated valuations relative to peers. In the past three years, at least 83 Indonesian companies have swung by 1,000% or more from peak to trough,?as per the Bloomberg report. That＊s about 10 percent of the total stocks listed, a higher proportion than in neighbouring Thailand, Malaysia, Singapore, Vietnam, and the Philippines.
While wild stock swings for illiquid shares are nothing new in emerging markets, the moves have become so extreme in Indonesia that regulators this week introduced a new watchlist board to quickly spot what they perceive as troubled companies as a way to protect investors. The list will include firms with no revenue growth, low share prices, thin liquidity, and firms undergoing debt restructuring, among other factors.?
Some traders are pushing for authorities to do even more, while President Joko Widodo has urged regulators to boost supervision of possible market manipulation.
What's at stake is investor confidence in Indonesia's nearly $640 billion stock market, which has become so illiquid that it＊s forced some companies to resort to higher-cost bank loans as a way to raise capital. The International Monetary Fund (IMF) said in a report last year that Indonesia＊s "shallow" financial markets are a longstanding challenge for growth. The ratio of the nation＊s stock market?cap to GDP is also the lowest among Southeast Asian peers.
But not all shares that are volatile are considered deep-fried stocks, though traders have expressed confusion over the growing levels of big swings. The results of the gains have minted or propelled the wealth of a handful of ultra-wealthy tycoons.
In the past three years, at least 83 Indonesian companies have swung by 1,000% or more from peak to trough, according to data. The country's President Widodo cited the extreme swings in shares of Indian tycoon Gautam Adani＊s companies when he called for more supervision in a speech to Indonesia＊s financial regulator in February. As per the report, this is a case that has drawn global interest.??
Adani＊s flagship?company?soared by more than 3,300%?between March 2020 through and the end of last year before losing half its value in the wake of Hindenburg's report alleging market manipulation and accounting fraud.?
However, Adani has repeatedly denied the allegations.?
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Low Tuck Kwong, a billionaire who controls PT Bayan Resources, became one of Asia＊s richest men after shares shot up more than 220% over six weeks at the end of 2022. A nearly 14,000% surge in shares of DCI Indonesia in the five months after debuting in early 2021 put majority owners Otto Toto Sugiri and Marina Budiman into billionaire status, as per the Bloomberg report.?
Even in 2019, Nico Purnomo Po had become a billionaire in Indonesia after the stock of a firm, PT Pollux Properti Indonesia, where he works as COO, surged more than 500% in about three months.
The Indonesia Stock Exchange has already imposed intraday trading limits and automatic rejection of certain bids and offers if they veer too far away from the asking price. Meanwhile, the financial services authority uses monitoring tools like trading halts or suspensions to cool any unusual market activity, according to capital market supervisor Inarno Djajadi.
Still, neither the exchange nor the regulator have indicated how they plan to filter and investigate the anomalies among the 800-odd stocks in the country.
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Some investors have developed a nickname for stocks that see eye-popping gains after a rush of buying and selling that later dies off.?Chinese call it "chao gu," or "stir-frying stocks,"? a reference to rapid speculation that keeps shares "hot." Indonesians have borrowed the concept, referring to such firms as "saham gorengan," or "deep-fried stocks." One way to describe this cohort is akin to how food of suspect quality tastes better fried.
The term became synonymous with the spectacular collapse of state insurance giant PT Asuransi Jiwasraya in 2020. The company needed a government bailout after investing in risky stocks, a violation of management guidelines that resulted in a gaping $2 billion financial loss, the report mentioned.
Indonesia＊s bourse has worked to increase transparency in its markets, including by creating special lists to monitor unusual activity. It also actively talks to companies about significant swings and tries to investigate anomalies. Still, progress appears to be slow and results are minimal, according to John Rachmat, senior advisor at Singapore-based Pinnacle Investment. "After so many decades, it＊s still a dead end," he said of regulators＊ efforts to curb volatility.
Wild market swings have not been restricted to Indonesia.?
In the US last year, a number of microcap stock debuts gave way to dizzying rallies. Those include Chinese garment manufacturer Addentax Group Corp., which soared 13,000% on its trading debut last year, while Hong Kong financial group AMTD Digital Inc. surged some 32,000%.?
China and Hong Kong too, have at times been known for dramatic price volatilities. Over the past three years, some 14% of Hong Kong shares have swung more than 1,000%, as per the Bloomberg report.?But there＊s potentially more at stake for Indonesia, a market that＊s still a fraction of China＊s and the U.S.'s and is trying to attract more investors to help boost its economy.?
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