Indonesia’s novice investors get burnt by frequent IPO reversals

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Novice investors rushing into the Indonesian stock market were baptized by fire after many initial public offerings, including the e-commerce group Bukarapack, fell below initial trading prices.

According to the Indonesia Stock Exchange (IDX), in a country where about half of the 270 million population is not in banks, one million have invested in stocks for the first time this year. Individual investors accounted for 59% of IDX’s transaction value, compared to only 37% in 2019.

Exchanges have always wanted more individual investors to be more liquid, but to strike a balance between fostering the country’s capital markets and educating novice investors about the risks associated with trading. The surge poses risks to exchanges and popular new trading platforms.

Since Indonesia’s largest IPO, Bukara Pack, went public on August 6, social media has been flooded with unfortunate investor comments. Bukarapack shares reversed the course after reaching the exchange price limit for two consecutive trading days. They reached the lower limit on the third day, and several times thereafter.

“Since the list of Bukara packs [stock market] Really, really bad. .. .. One user said he was playing with the e-commerce platform ticker BUKA. This means “open” in Indonesian.

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Another said: “Thanks to Bukara Pack. I learned to make inventory smarter. [investment].. I bought 30 lots at the peak, but now I’m stuck. I feel like I’m mentally screwed in. “

The stock price of Bukarapack is now about 20% lower than the closing price on the first day, which is comparable to the IPO price. They are not alone. Other newly IPO stocks, including nickel miner Pam Mineral and mining equipment company Urimanitra, initially rose and then fell further.

Analysts say retail investors are leading the frenzy of newly IPO stocks. “It’s crowd behavior or fomo [fear of missing out]”Alfred Nainggolan, Head of Research at Prous Capital, said. “The existence of applications and platforms that make it easier for retail investors to trade directly tends to cause such a phenomenon.”

A trading app similar to Robin Hood in the United States is helping to increase the number of retail investors in many countries because it is easier to trade at lower fees than traditional brokerage firms. The Covid-19 pandemic is also a factor, and many are stuck with little to do at home.

Bukalapak logo outside the headquarters

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

Indonesian trading apps are expanding rapidly against the backdrop of cash injections from investors around the world. Agive supporters include Japan’s Softbank, and Stockbit is invested by venture capital firm Sequoia Capital. “Record growth was seen [in registered users] This year was driven by the global rise of retail investors, “said Anderson Sumari, CEO of Ajaib. “There are hundreds of thousands of new users.”

Despite investing only in stocks since 2018, 29-year-old IT consultant Aris Muhammad is considered a relatively experienced investor and he is his favorite company. I am determined to be a disciplined long-term shareholder.

“After reaching the movement limit, I wanted to sell Bukarapack stock,” he said. However, he was optimistic that “e-commerce still has a lot of room for growth,” so he decided to oppose it.

Muhammad admits his mistake. “I felt traumatized and embarrassed about losing money, so I forgot how much I lost,” he said. “I was only investing in the stocks that were in top gain the day before, and one day the stocks I bought fell. It never recovered beyond the price I bought. I Temporarily gave up trading. “

Investors acquired after IPO suffer significant losses

Investors acquired after IPO suffer significant losses

Many new investors have similar experiences. Twenty-six of the 38 IPOs in 2021 reached the upper limit of price fluctuations on the first day of trading, but seven, including Bukarapack, traded below the closing price on the first day within a week. As of late September, 10 was trading lower than the initial closing price.

Dissatisfied with the poor performance, some investors in Bukarapack visited the Google Play store and “reviewed bombs” the app, damaging their rankings.

“Watch out for stock prices first,” said one reviewer. “”[IPO] It just made the owner richer. After that, stock prices fell for a few days, pulling down other good stocks. I regret having installed the company application. “

Another called the “destroyer of the Indonesian economy” and the “crusher” of the Jakarta Composite Index. Both critics gave the app only one star.

Individual investors looking for trading ideas are looking for influencers on YouTube, TikTok and Twitter. Some, but not all, provide serious advice based on the company’s outlook and basic risk research.

Maximilianus Nico Demus, Associate Director of Pilarmas Investindo Sekritas, a local brokerage firm, said:

Change.org’s petition, with more than 6,600 signatures, tells Indonesian authorities to “provide stock information or stock signals that they have purchased” and “pump and dump without explicit fundamentals and analysis.” We are asking you to crack down on influencers. “. Pumps and dumps are fraudulently soaring stock prices in order to sell at higher prices.

“One of the things that is never easy is education, and the process is very long,” said Demus of Pilarmas. “But on the other hand, IDX has the goal of adding as much as possible. [investors] The possible and most likely target is young people who are tech-savvy and tend to want immediate results as well. This is certainly a dilemma. “

According to Hasan Fawzi, Director of Development at IDX, the exchange is working to ensure that certain stocks are “sufficiently liquid and eliminate market manipulation as much as possible.”

Forge said limiting price volatility is important to “enable investors to gather more information about a particular stock and act calmly and confidently.” He said the stock exchange is also developing “a new pre-closing mechanism that randomizes the closing time of the last two minutes before the market closes” to prevent manipulation.

Indonesia Stock Exchange Investor Share

Indonesia Stock Exchange Investor Share

The trading platform states that it is taking steps to educate investors and provide a wide range of resources to discourage transactions such as gambling.

“We consistently educate and remind users that they need to understand what they are investing in, so we provide them with information and analytics. [on the platform] They can be used for decision making, “Sumarli said. Through its social media platform, Ajaib provides materials such as equity analysis, market updates, finance and risk management for beginners.

William Ndut, a Stockbit spokesman, said he is offering similar content on social media platforms. “We try to speak millennial languages,” he said. “We are trying to tailor an educational literacy program that seems to be better suited to social media behavior.”

“There are always people who think they want immediate wealth through the capital markets, and we can’t reach a state where 100 percent of people are educated and investing properly,” he said.

Additional report by Ismi Damayanti.

NS Version of this article Published by Nikkei Asia on October 4th. © 2021 Nikkei Co., Ltd. All rights reserved.

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