Tiny Stocks Making 1,058% Gains Have Indonesia Funds on Edge

(Bloomberg) -- Indonesia’s equity benchmark barely moved this year but some newly listed companies have generated eye-popping gains. This is prompting investors to warn that thin liquidity around these shares could fuel excessive volatility.

Among the best performing 15 stocks year to date on the Indonesia Stock Exchange, 12 went public in 2019 including household appliance company Gaya Abadi Sempurna in October and hotel operator Citra Putra Realty in January. On average these 12 stocks posted staggering gains of 1,058%, according to Bloomberg-compiled data, compared with a drop of almost 1% for the Jakarta Stock Index.

The Indonesia Stock Exchange aims to attract 75 new listings in 2019, exceeding targets set for previous years. But market watchers say the recent slew of small-cap listings exposes investors to the risks of thin trading liquidity and price manipulation.

“All the new IPOs are mid or small cap, with very, very tiny liquidity, and their stock prices are all being ramped up,” said Bharat Joshi, an investment director for Aberdeen Standard Investments Indonesia.

The country is seeking to revive its market for initial public offerings by cutting taxes for companies that sell shares. The proposed corporate tax rate of 17% for newly listed firms in the first five years is lower than that of its Southeast Asian neighbors such as Malaysia and Thailand.

The incentive has drawn mostly tiny companies so far. About 90% of companies which went public this year raised proceeds of below 500 billion rupiah ($35.5 million) each and their flotations account for just 30% of the group’s total equity base on average, Bloomberg-compiled data show.

Their shares are mainly distributed to a group of cornerstone investors and the limited reach makes the stock illiquid, said Chandra Pasaribu, head of research at Yuanta Sekuritas.

The volatility in some of the newly listed shares has caused the exchange to halt trading in several instances. Given the very tight liquidity, it doesn’t take much to fuel a jump in prices when there’s demand, said Joshi at Aberdeen Standard.

Investors will be looking to see how a couple of upcoming small listings fare. Food maker Palma Serasih expects to raise 299.3 billion rupiah when it’s floated on Nov. 25, the same day as dairy product manufacturer Mulia Boga Raya’s scheduled 75 billion rupiah IPO.

Overall, Indonesian IPOs have raised $869 million this year, down 28% from the same period in 2018, according to data compiled by Bloomberg. The Financial Services Authority continues to encourage companies including big firms to seek a listing, Fahri Hilmi, deputy commissioner for capital market supervision at the market regulator, told Bloomberg.

--With assistance from Zhen Hao Toh.

To contact the reporters on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net;Ishika Mookerjee in Singapore at imookerjee@bloomberg.net;Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Liau Y-Sing

©2019 Bloomberg L.P.