World's Most Volatile Big Stock Is Rocking Indonesia's Market

PT Barito Renewables Energy, Indonesia’s largest publicly-traded company by market capitalization at $85 billion, has experienced an unprecedented level of volatility over the past nine months. This stock price volatility, the highest among companies worldwide with a $50 billion market cap or higher based on 30-day volatility, has puzzled professional analysts and challenged regulators’ attempts to establish more order in the Indonesian stock market.

The Indonesian Stock Exchange created a watchlist for volatile and troubled companies in June 2022, envisioning it as a means to restore credibility to the market that had been affected by high volatility and shrinking liquidity. Companies could be added to the watchlist due to reasons such as zero revenue growth, thin liquidity, and trading under a specific amount for three months. In May 2023, the exchange implemented “full call auction” on all watchlist companies, a mechanism that matches buy and sell orders, to increase liquidity.

However, when the Indonesian Stock Exchange added PT Barito Renewables to the watchlist in late May 2023, without providing a clear reasoning, the market reacted significantly. Within two weeks, the company’s stock declined by almost half, leading to a loss of approximately $43 billion and a nearly 5% decline in the Jakarta Stock Exchange Composite Index. This volatility even delayed the company’s inclusion in the large-cap index, which would have generated new foreign inflows.

Local traders also expressed their displeasure, arguing that the restrictions negatively impacted market stability and returns. Some protested by sending funeral flower arrangements to the exchange’s office and organizing petitions for the revocation of these restrictions.

Despite facing strong criticism, the exchange defended its decisions, stating that the restrictions enhanced price discovery for penny stocks and improved liquidity. The Financial Services Authority said it was benchmarking its policies against similar rules in other countries. Barito Renewables is owned primarily by PT Barito Pacific, which is controlled by billionaire owner Prajogo Pangestu. Prajogo Pangestu has continued purchasing shares in the company since his initial investment, reflecting his confidence in its prospects.

In late May, following widespread criticism, the regulator finally removed Barito Renewables from the watchlist without providing further explanation. Exchange Director Jeffrey Hendrik indicated that several stocks were removed due to improved liquidity.

Investors’ concerns about the watchlist’s implications may accelerate an exodus of foreign capital, as broader macro issues such as uncertain fiscal policy and a weak rupiah are already negatively impacting the Indonesian market. Analysts suggest that while these restrictions may benefit small penny stocks, they may deter investors, especially foreign funds, from investing in larger companies like Barito due to the lack of transparency and market-driven process associated with these restrictions.

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