Indonesian first-time investors burned by frequent IPO reversals

JAKARTA – Newbie investors swarming the Indonesian stock market have had their baptisms of fire after a number of hot initial public offerings, including e-commerce group Bukalapak, collapsed below their first prices negotiation.

In a country where about half of the 270 million people are still unbanked, one million people invested in stocks for the first time this year, according to the Indonesian Stock Exchange (IDX). Retail investors accounted for 59% of the value of transactions on the IDX, he said, up from just 37% in 2019.

While the exchange has always wanted more retail investors to increase liquidity, the surge presents risks for the exchange – and for popular new trading platforms – as they try to balance the Maintenance of the country’s capital markets with education of novice investors on the risks of trading.

Since the August 6 listing of Bukalapak, the largest IPO ever in Indonesia, social media has been inundated with comments from regrettable investors. After hitting its upward price movement limit for two consecutive trading days, Bukalapak’s shares reversed course. They hit the lower limit on the third day, and several times thereafter.

“Since the inscription of Bukalapak, the [stock market] has been really, really bad… Better to CLOSE this issuer, ”said one user, playing the BUKA e-commerce platform ticker, which means“ open ”in Indonesian.

Another said: “Thank you Bukalapak. I learned to be wiser in stock [investment]. I bought a maximum of 30 lots and now I’m stuck. I feel like I’m mentally screwed up. “

Bukalapak shares are now around 20% below their day one closing price and at the same level as the IPO price. He is not alone. Other newly floated stocks, including nickel miner PAM Mineral and mining equipment company Ulima Mitra, fell further after initially rising.

Some investors in Bukalapak, Indonesia’s largest IPO ever, have expressed regret on social media. © Reuters

Analysts say retail investors are leading the frenzy for newly floated stocks. “It’s herd behavior or FOMO [fear of missing out]”said Alfred Nainggolan, head of research at Praus Capital.” The presence of apps and platforms that allow retail investors to trade directly tends to create such a phenomenon. “

Trading apps similar to Robinhood in the United States have helped increase the number of retail investors in many countries as they offer easier transactions at a lower commission than conventional securities companies. The COVID-19 pandemic has also been a factor, with many people stranded at home with little to do.

Indonesian trading applications have grown rapidly thanks to injections of liquidity from global investors. Ajaib’s backers include SoftBank of Japan, while Stockbit has taken investments from venture capital firm Sequoia Capital. “We have achieved record growth [in registered users] this year, thanks to the global boom in retail investors, “said Anderson Sumarli, Managing Director of Ajaib.” We have hundreds of thousands of new users. “

Although he did not invest in stocks until 2018, Aris Muhammad, a 29-year-old computer consultant, is considered a relatively seasoned investor, and he is determined to be a disciplined and long-term shareholder. in his favorite businesses.

“I was tempted to sell Bukalapak shares after they hit the upper movement limit,” he said. But he decided not to do so because he is optimistic that “e-commerce will still have a lot of room to develop”.

Muhammad admits his mistakes. “I forgot how much I lost because I was traumatized and ashamed of losing money,” he said. “I was only investing in stocks that were the most successful the day before, and one day a stock I bought fell. It never exceeded the price I bought. I momentarily gave up. trade. “

Many newbie investors have similar experiences. Twenty-six of the 38 IPOs in 2021 hit the upper price movement cap on their first day of trading, but seven were trading below the first day’s closing price in a week, including Bukalapak. At the end of September, 10 were trading below their first close.

Some investors in Bukalapak, unhappy with its mediocre performance, have taken to the Google Play Store to “bombardly” its application and undermine its ranking.

“Take care of your stock price first,” said one reviewer. “[IPO] only enriched the owners. After that, the stock price fell for days, dragging other blue chip stocks down. I regret that I installed the company’s application. “

“Destroyer of the Indonesian economy,” said another, calling it the “crusher” of the Jakarta Composite Index. ” Both reviewers only gave the app one star.

Retail investors looking for trading ideas sought influencers on YouTube, TikTok, and Twitter. Some offer serious advice based on basic research of a company’s prospects and risks, but not all.

“There are a lot of influencers, especially on YouTube, who say stocks are all about money or profit,” said Maximulianus Nico Demus, Managing Partner of Pilarmas Investindo Sekuritas, a securities firm local furniture.

A petition with more than 6,600 signatures called on Indonesian authorities to crack down on influencers who “provide stock information or stock signals they say they bought” and who “pump and dump without fundamentals and analysis clear “. . “Pump-and-dump fraudulently inflates the price of a stock in order to sell it at a higher price.

“One thing that is never easy is education, and the process is quite long,” said Demus de Pilarmas. “But on the other hand, IDX aims to add as many [investors] as possible and the most potential targets are young people who are tech-savvy and tend to want instant results as well. It is indeed a dilemma. “

According to Hasan Fawzi, director of development at IDX, the exchange strives to ensure “that there is sufficient liquidity for a particular stock and to eliminate as much as possible manipulation of the market.”

Fawzi said price movement limits were important to “allow investors to gather more information about a particular security and to act with calm and confidence.” The exchange is also developing a “new pre-close mechanism that will randomize the close time in the last two minutes before the market closes” to avoid manipulation, he said.

Trading platforms say they are taking steps to educate investors and provide plenty of material to deter game-style trading.

“We are constantly educating and reminding our users that they need to understand what they are investing in. That is why we provide them with insight, analysis [on the platform] that they can use to make decisions, ”Sumarli said. Through its social media platforms, Ajaib provides educational material such as stock analysis, market updates, and financial and risk management for beginners.

William Ndut, spokesperson for Stockbit, said he provides similar content on his social media platforms. “We are trying to speak the language of millennials,” he said. “We are trying to adapt the literacy curriculum to education which we believe is more suited to their behavior on social media.”

“There are always people who think they want instant wealth through the capital market, and we cannot achieve a state where 100% of people are educated and invest properly,” he said.

Additional reporting by Ismi Damayanti.

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