Optimism Fuels Indonesia’s Capital Market in 2025

JAKARTA, investortrust.id - Mitigating uncertainty remains crucial for policymakers to sustain economic growth, particularly as significant challenges loom in 2025. Despite these hurdles, optimism is growing in Indonesia’s capital market, fueled by strong fundamentals and improving conditions.

The Indonesia Stock Exchange (IDX) Composite Index (IHSG) is projected to continue its positive trajectory, with analysts predicting it could reach the 8,000 mark. This outlook is bolstered by Indonesia’s resilient economy, solid fiscal foundations, and ongoing efforts to enhance the business climate.

This sentiment was echoed by officials, regulators, and market players during the ceremonial opening of trading at the IDX in Jakarta on Thursday, January 2, 2025, signaling confidence in the nation's ability to navigate potential economic headwinds.

Resilience Amid Challenges

In 2024, the IHSG declined by 2.65%, closing at 7,079.91. Despite this, Indonesia’s capital market demonstrated robust performance in key areas. According to Mahendra Siregar, Chairman of the Financial Services Authority (OJK), various indicators reflected solid growth, aligning with the country’s overall economic resilience.

Market capitalization rose by 5.74%, reaching Rp 12,264 trillion, equivalent to 56% of GDP.

Additionally, fundraising activities in the capital market amounted to Rp 259.24 trillion from 199 public offerings. This included 43 new issuers with initial public offering (IPO) values of Rp 16.68 trillion and rights issues totaling Rp 41.77 trillion.

Mutual Funds, Crowdfunding, and Carbon Market See Positive Growth

Mutual funds in Indonesia recorded an increase in Asset Under Management (AUM), reaching Rp 840.6 trillion by the end of 2024, a 1.44% year-to-date (ytd) rise. Meanwhile, fundraising through Securities Crowdfunding (SCF) reached Rp 1.35 trillion, facilitated by 16 SCF platforms that supported 708 small and medium enterprises (SMEs).

A significant achievement came from the growth in Single Investor Identification (SID) registrations, which soared to 14.8 million, marking a 22.21% ytd increase and surpassing the 2024 target.

"Encouragingly, the majority of these investors—79%—are under the age of 40," said Iman Rachman, President Director of the Indonesia Stock Exchange (IDX).

The Carbon Market, launched on September 26, 2023, also demonstrated promising progress. As of December 30, 2024, the market recorded a transaction volume of 908,000 tons of CO2 equivalent, with a cumulative transaction value of Rp 50.64 billion. To date, 100 companies have participated as service users, with a total available carbon unit supply exceeding 1.35 million tons of CO2 equivalent.

The President Director of the Indonesia Stock Exchange (IDX), Iman Rachman, acknowledged that 2024 was a challenging year for Indonesia’s capital market, marked by both obstacles and opportunities. “Throughout the year, the IHSG experienced significant volatility,” Iman stated.

Mixed Results for IPO Applications

The IDX Director of Corporate Valuation, I Gede Nyoman Yetna, noted that while initial public offering (IPO) applications remained steady in 2024, some companies withdrew their listings.

“Some companies postponed, and others faced rejection due to concerns about financial conditions, operational stability, legal compliance, and the company’s going concern status,” explained Nyoman.

Nyoman identified both internal and external factors influencing IPO plans. Internally, company readiness, including financial performance and adherence to Good Corporate Governance (GCG) standards, was critical. Externally, global and domestic macroeconomic conditions—such as interest rates and inflation—also played a significant role.

Decline in IPO Activity Across ASEAN

IPO activity in 2024 failed to meet expectations, a trend not exclusive to Indonesia. ASEAN countries and global markets faced similar declines in both the number of new listings and the value of funds raised.

Nyoman highlighted the primary cause: elections in nearly 70 countries, representing 60% of global GDP, which prompted businesses to adopt a "wait-and-see" approach toward new government policies.

In Indonesia, IPO fundraising in 2024 totaled US$0.9 billion, a 74% drop compared to US$3.6 billion in 2023. Thailand also experienced a decline, with IPO fundraising down 3.8% from US$1.3 billion to US$0.8 billion. However, Malaysia saw a 105% increase, rising from US$0.8 billion in 2023 to US$1.7 billion in 2024. The Philippines recorded the highest growth rate at 164% year-on-year (yoy), though its total IPO fundraising remained relatively small, increasing from US$0.1 billion to US$0.2 billion.

Despite the decline in fundraising, Malaysia led the region in new listings with 49 issuers, followed by Indonesia with 43, Thailand with 31, and Singapore with just four. On average, the number of IPOs in ASEAN fell by 20.99% yoy.

Despite a decline in IPO activity, bond, sukuk, and other securities issuances on the Indonesia Stock Exchange (IDX) showed significant growth in 2024. The IDX reported 680 securities issuances, achieving 200% of its annual target and marking a 176% increase from 2023. This indicates that companies continue to utilize the capital market for fundraising, reflecting its resilience amid challenges.

Market Capitalization and Investor Participation Lagging Behind ASEAN Peers

The contribution of Indonesia’s stock market to the country’s GDP remains relatively low compared to other ASEAN nations. Indonesia’s market capitalization stands at 56% of GDP, far behind India at 140%, Thailand at 101%, and Malaysia at 97%.

Investor participation as a proportion of the adult population also lags behind regional peers. In Indonesia, only 7.4% of the adult population are stock market investors, a figure comparable to Malaysia (7.4%) but significantly lower than Singapore (10.9%).

Mahendra Siregar, Chairman of the Financial Services Authority (OJK), emphasized the need for further improvements in 2025 to unlock the full potential of Indonesia’s capital market. “Strengthening the market ecosystem requires a firm foundation of integrity,” he said, noting that a positive market performance is crucial to supporting the nation’s economic growth targets.

In 2025, OJK and all relevant stakeholders, including Self-Regulatory Organizations (SROs), are committed to implementing a series of strategic government programs aimed at enhancing and expanding the capital market.

Key Initiatives for 2025

The programs will prioritize deepening the market by increasing the quantity and quality of listed companies. Initiatives include boosting the free float of shares and encouraging large-cap companies to go public. Mahendra highlighted that these efforts aim to make the market more inclusive and accessible.

Additionally, regulatory and system enhancements will be implemented to improve the efficiency and transparency of the public offering process. This includes the development of new products, infrastructure, and services, with a focus on increasing the participation of institutional investors in both primary and secondary markets.

OJK also plans to optimize the use of Asset-Backed Securities (EBA) to support the financing of Indonesia’s “3 Million Homes” program. “We are ready to strengthen the framework and ecosystem for EBA to enhance liquidity,” Mahendra stated.

The capital market will also focus on expanding sustainable financial products, including carbon trading and ESG-oriented instruments. Infrastructure and transaction services for these products will be further developed to accommodate growing demand.

A priority program for 2025 is to enhance the capacity, governance, risk management, and compliance of stock exchange members and investment managers (MI). This includes bolstering information technology security and operational systems.

“Through this program, exchange members and investment managers are expected to play a greater role in expanding the penetration of capital market products beyond equities. These efforts will be accompanied by stronger investor protections to ensure confidence in the market,” Mahendra explained.

Chairman of the OJK Board of Commissioners Mahendra Siregar attends the 2025 Indonesia Stock Exchange Opening Ceremony in Jakarta, Thursday, January 2, 2025. Photo: Investortrust/Mohammad Defrizal.

Financial Literacy as a Pillar of Growth

Efforts to develop Indonesia’s capital market have received strong support from the Ministry of Finance. Finance Minister Sri Mulyani Indrawati is committed to advancing market deepening initiatives through education and improved financial literacy among the public.

“Stock trading education should no longer be introduced at the university level but should begin in elementary schools so students become familiar with the stock exchange early on,” Sri Mulyani stated.

Sri Mulyani expressed optimism that incorporating capital market education into school curriculums would help Indonesians diversify their savings into capital market products. She emphasized that transforming Indonesia from a saving society to an investment society is achievable with early education.

Her proposal was welcomed by Frederica Widyasari Dewi, Head of Conduct Supervision, Education, and Consumer Protection at the Financial Services Authority (OJK). She noted that many OECD member countries, including Australia, Austria, Belgium, Canada, and Colombia, have already integrated financial education and capital market concepts into school curriculums.

“We’ve been collaborating with the Ministry of Education to push this agenda. Ideally, this curriculum should not only be limited to business and economics faculties but should also reach middle schools, high schools, and universities,” said Frederica, commonly known as Kiki. While the curriculum framework is ready, she added, its formal integration into schools is still pending.

Strengthening Regulatory Frameworks

In addition to financial literacy, the Ministry of Finance is focusing on refining regulations in the financial sector. This includes implementing derivative products under Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK) and introducing carbon taxes and sectoral emission limits to support carbon market development.

“We will collaborate with relevant ministers to finalize P2SK derivative products and improve financial sector regulations. These measures aim to foster innovation and creativity while upholding corporate governance principles,” Sri Mulyani affirmed.

Finance Minister Sri Mulyani Indrawati at the opening of trading at the Indonesia Stock Exchange on Thursday, January 2, 2025. Photo: Investortrust/Mohammad Defrizal.

Fiscal Health as a Foundation for Growth

Sri Mulyani also highlighted the importance of macroeconomic stability to create a conducive investment environment. Despite significant fiscal pressures in the first half of 2024, Indonesia’s State Budget (APBN) ended the year on a strong note.

Although revenue targets were not fully met, the 2024 APBN performed better than in 2023. Despite high expenditures across ministries and agencies, which grew by double digits, the fiscal deficit was reduced to 2.7% of GDP. “This demonstrates that our State Budget is relatively healthy and secure, providing a strong foundation as we enter 2025,” she concluded.

Although the Composite Index closed 2024 with a decline, analysts and investment managers remain optimistic about significant growth in 2025. Agus B Yanuar, President Director of PT Samuel Aset Manajemen, noted that the IHSG could have closed at 7,400–7,500 last year if not for global issues that triggered a market correction in December.