Besides the primary market (or when companies go public through an initial public offering) and mutual funds, the secondary market - where investors trade amongst themselves - is an important trading place to purchase Indonesian stocks. For domestic and foreign investors, the most used method to participate in this secondary market is through opening a securities account at an Indonesian brokerage or securities firm that is a member of the Indonesia Stock Exchange (IDX).
Securities Account at an Indonesian Broker
For Indonesian citizens and those foreigners/expats who live in Indonesia (thus who have a resident permit/KITAS) it is possible to open a securities account at an Indonesian broker. Usually the following steps need to be taken:
1. Submit a copy of your passport
2. Fill in the agreement form provided by the broker
3. Pay a deposit; the amount varies from broker to broker (lets say USD $5,000)
4. Get approval of the account
However, for an individual (as opposed to corporate) foreign investor who does not have a KITAS and Indonesian tax number (NPWP) it is very difficult, perhaps even impossible, to open a securities account in Indonesia. But not all brokers have the same policies and therefore you are advised to contact brokers and inquire about their exact policies regarding foreign clients. For example, some brokerages will approve an account for an expat who does not have a NPWP (but the KITAS is still required though).
An extensive list of brokers that are active in Indonesia's secondary market is provided on the official website of the Indonesia Stock Exchange. It is important to do some research about the broker before you decide to become a client as it has occurred that Indonesian brokers (in particular smaller ones) embezzled their clients' money. The IDX monitors brokers that are member of the IDX, but does not publish any preliminary findings. Announcements will only be made when the IDX decides to suspend a broker due to irregularities, but by then it is often too late for investor clients to withdraw their money.
For questions regarding the purchase of Indonesian stocks, please contact us here.
Structure of Indonesia's Capital Market