Indonesia isn’t exactly a hub for stock trading. According to the International Monetary Fund, no other Southeast Asian country has a smaller market for equities relative to the size of its economy. Therefore, it was surprising when Indonesia emerged this year as one of the world’s strongest markets for IPOs.
During a 20-week span, companies raised $2.4 billion from first-time stock sales. That’s nearly as much as Singapore and Hong Kong combined. Year to date, Indonesia ranks No. 4 globally, trailing only China, the US, and the United Arab Emirates.
Part of the reasons is the intensive rush to transition from fossil fuels and into green energy. Indonesia is the largest miner of nickel in the world, a key material in the production of batteries needed to power electric vehicles, forklifts, and lawnmowers. The country also has vast reserves of copper, golad, tina and cobalt.
Consequently, Jakarta has seen a large number of foreign investors showing interest, many of whom had rarely visited before last year. “It was hard to get someone from London, Hong Kong or Singapore to come here, now some of them have come for a visit three or four times within a year, looking for good ideas.” says Irwanti , the CIO of Schroders Indonesia.
Indonesia also possesses some powerful advantages. With a population of about 280 million, it’s the fourth largest in the world, providing a substantial base of retail and institutional investors. Its GDP of $1.3 trillion ranks it No. 1 in the region.
In a country blessed with natural resources, most IPOs this year came from expansion-minded metals firms, such as PT Trimegah Bangun Persada, the first Indonesian company to process low-grade nickel ore into battery-grade metal. The government is also heavily investing in becoming more of a manufacturer, rather than just a raw material supplier.
Indonesia’s strong economy also offered support. Its GDP is expected to expand by 5% this year, surpassing the 4.7% growth forecast for Asia, excluding Japan. The Indonesian rupiah is the region’s best-performing currency this year, thanks to the central bank raising borrowing costs to a four-year high.
Still, the Indonesian IPO market faces challenges. Deals tend to be relatively small. Almost 92% of the 66 listings this year raised less than $100 million, a size unlikely to appeal larger institutional investors.
Trading is also limited. Regulators require that only 7.5% of a listing be available to the public for trading. The small free float can make stocks volatile and unattractive to investors.
Some suggest that fundraising activity may slow as Indonesia prepares for a general election in February. Although local and foreign players expect market-friendly policies to remain in place, some companies have already postponed IPO plans.
Overall, there are signs to note Indonesia’s share sales are gaining acceptance outside the country. They’re drawing interest from Masdar, the United Arab Emirates’renewables company, regional sovereign wealth funds and international investors.