Indonesia’s novice investors get burnt by frequent IPO reversals

Novice investors crowding into the Indonesian stock market have had baptisms of fire after a number of hot initial public offerings, including the ecommerce group Bukalapak, crashed below their early trading prices.

In a country where about half of the 270m population remains unbanked, a million people invested in stocks for the first time this year, according to the Indonesia Stock Exchange (IDX). Retail investors accounted for 59 per cent of trading value on the IDX, it said, compared with only 37 per cent in 2019.

While the exchange has always wanted more retail investors to increase liquidity, the surge poses risks to the exchange — and to popular new trading platforms — as they try to balance nurturing the country’s capital markets with educating novice investors about the risks involved in trading.

Since the listing on August 6 of Bukalapak, Indonesia’s biggest IPO, social media have been awash with comments from regretful investors. After hitting the exchange’s upward price movement limit for two consecutive trading days, Bukalapak’s shares reversed course. They hit the downward limit on the third day, and on several occasions thereafter.

“Since Bukalapak’s listing, the [stock market] has been really, really bad . . . Better CLOSE this issuer,” one user said, playing on the ecommerce platform’s ticker BUKA, which means “open” in Indonesian.

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Another said: “Thanks Bukalapak. I learned to be wiser on stock [investment]. Bought 30 lots at peak and now I’m stuck. It feels like being screwed mentally.”

Bukalapak shares are now about 20 per cent lower than their first-day closing price, and on par with the IPO price. They are not alone. Other newly IPO-ed stocks, including nickel miner Pam Mineral and mining equipment company Ulima Nitra, have fallen further after initially rising higher.

Analysts say that retail investors are leading the frenzy for newly IPO-ed stocks. “It is herding behaviour or fomo [fear of missing out],” said Alfred Nainggolan, head of research at Praus Capital. “The presence of applications and platforms that make it easy for retail investors to trade directly has a tendency to create such a phenomenon.”

Trading apps akin to Robinhood in the US have contributed to the rise in numbers of retail investors in many countries, since they offer easier trading at a lower commission than conventional securities companies. The Covid-19 pandemic has also been a factor, with many people stuck at home with little to do.

Bukalapak logo outside the company’s headquarters
Some investors in Bukalapak, Indonesia’s biggest IPO, have been venting their regrets on social media © Reuters

Indonesia’s trading apps have expanded rapidly on the back of cash injections from global investors. Ajaib’s backers include Japan’s SoftBank, while Stockbit has taken investment from venture capital firm Sequoia Capital. “We saw record growth [in registered users] this year, driven by the global rise of retail investors,” said Anderson Sumarli, chief executive of Ajaib. “We have hundreds of thousands of new users.”

Despite only investing in stocks since 2018, Aris Muhammad, a 29-year-old IT consultant, is considered a relatively seasoned investor, and he is determined to be a disciplined, long-term stockholder in his favoured companies.

“I was tempted to sell Bukalapak shares after they reached the upper movement limit,” he said. But he decided against it because he was optimistic that “ecommerce will still have a lot of room to grow”.

Muhammad admits his mistakes. “I forgot how much I lost, because I was traumatised and ashamed of myself for losing money,” he said. “I was only investing in stocks that were top gainers the previous day, and one day a stock I bought fell. It never recovered above the price I bought. I momentarily gave up trading.”

Investors who bought in after an IPO have big losses
Investors who bought in after an IPO have big losses

Many neophyte investors are having similar experiences. Twenty-six of 2021’s 38 IPOs hit the upper price movement cap on their first day of trading, but seven were trading beneath the day one closing price within a week, including Bukalapak. As of late September, 10 were trading lower than their first close.

Some investors in Bukalapak, disgruntled by its lacklustre performance, went to Google Play Store to “review bomb” its app and hurt its ranking.

“Take care of your stock price first,” said one reviewer. “[IPO] only made the owners richer. After that the stock price dropped for days, dragging down other blue-chip stocks. I regret installing the company application.”

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

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

“There are many influencers, especially on YouTube, who say that shares are only about money or profit,” said Maximilianus Nico Demus, associate director of Pilarmas Investindo Sekuritas, a local securities company.

A petition on with more than 6,600 signatures has called on the Indonesian authorities to crack down on influencers who “provide stock info or stock signals that they say they have bought” and who “pump-and-dump without clear fundamentals and analysis”. Pump-and-dump is fraudulently inflating 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 of Pilarmas. “But on the other hand, IDX has a target of adding as many [investors] as possible and the most potential targets are young people who are technology savvy and tend to want instant results too. This is indeed a dilemma.”

According to Hasan Fawzi, IDX’s development director, the exchange is working to ensure “there is enough liquidity for a particular stock and eliminate as much as possible market manipulation activity”.

Fawzi said the price movement limits were important to “allow investors to gather more information about a particular stock and act on it with calmness and confidence”. The stock exchange is also developing a “new pre-closing mechanism which will randomise closing time in the last two minutes before market close” to prevent manipulation, he said.

Share of investors in Indonesia Stock Exchange
Share of investors in Indonesia Stock Exchange

The trading platforms say they are taking steps to educate investors and providing extensive material to dissuade gambling-like trading.

“We consistently educate and remind our users that they need to understand what they are investing in. That’s why we provide them with information, analysis [on the platform] that they can use to make decisions,” said Sumarli. 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 it provides similar content on its social media platforms. “We try to speak the language of the millennials,” he said. “We try to tailor the education literacy programme that we think is more suitable to their social media behaviour.”

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

Additional reporting by Ismi Damayanti.

A version of this article was first published by Nikkei Asia on October 4. ©2021 Nikkei Inc. All rights reserved.

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