INDONESIA HAS THE largest economy in southeast Asia but its equity market is a minnow. According to Dealogic, since 2005, Indonesian companies have raised just $3.82 billion from 39 issues. Although the Philippines’ market raised marginally less over the same period, its economy is tiny compared with Indonesia’s, which has the lowest equity market valuation to GDP of any market in Asia.
This underperformance has nothing to do with a lack of enthusiasm for Indonesian equities: the Jakarta Stock Exchange Index has almost trebled in value over the same period. The answer lies in the idiosyncratic way in which Indonesian capital requirements have been funded.
"Prior to 1997/98, Indonesia was primarily a loan market," says Suresh Narang, managing director, chief country officer and head, global markets, at Deutsche Bank in Jakarta. "There was no fixed-income market, there were some equities, mainly nominal listings."
| "It’s the hedge funds that have led the way in taking Indonesian risk" |
 |
Much of the vanilla loans market post the 1998 financial crisis has been replaced not by equities but by a burgeoning market for high-yield Indonesian debt and more sophisticated, often tailor-made leveraged loan packages.