The high price-to-earnings ratio (PER) of Indonesia's benchmark Jakarta Composite Index has caused foreign investors to record net selling since 4 July 2017. The peak occurred on Tuesday (25/07) when foreign investors recorded net selling of IDR 1.65 trillion (approx. USD $124 million). So far this year, foreign net buying into Indonesian stocks now stands at IDR 6.56 trillion (approx. USD $493 million).
On Wednesday (26/07) the Jakarta Composite Index fell 0.23 percent to 5,800.21 points. Trading value reached IDR 7.6 trillion. Most of transactions - 66 percent - were conducted by domestic investors, while foreign investors sold IDR 115.3 billion more shares than they bought.
Jeffrosenberg Tan, Associate Director of Sinarmas Sekuritas, said there currently exists a global trend where capital moves out of developing countries such as Indonesia and India. Foreign investors are engaging in profit taking in emerging markets, while seeking new investment in European markets. The high PER is one of the factors that makes foreigners exit emerging markets.
"There are more than one reason why foreigners exit emerging markets, but in terms of valuation Indonesia has indeed become rather expensive. Meanwhile, investors remain cautious due to the correction that occurred on Wall Street, hence risk-appetite declines. This definitely impacts on stock markets in emerging nation," Tan added.
With regard to the PER, Tan said that Indonesia has become among the nations with the highest ratio in the Southeast Asian region. Based on Bloomberg data Indonesia's PER reached 24.04 times on Wednesday (26/07), the second-highest after China (27.98 times).
Other matters that make foreign investors turn away from Indonesia are an increase in earnings downgrades, a listless currency as well as slow progress of regulatory reform amid the nation's political uncertainty.
Jakarta Composite Index: