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History of Capital Market in Indonesia

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Capital market is a financial market or instrument which securities such as long-term debt, stocks, bonds and equities are bought and sold. In the capital market exchange, the brokers that represent investors meet each other. The money is provided for more than one year in capital markets. There are two kinds of capital markets, which are primary markets and secondary markets. New stocks or bonds are sold to the investors in primary markets. The government only publishes bonds while companies publishes equities or bonds. On the other hand, the existing securities are sold and bought between investors or traders in the secondary markets.


Indonesia’s capital markets have shown an amazing recovery from the Asian Financial Crisis back in 1990s. The fast growth of Indonesia’s economy was a result from the strengthening of economic fundamentals and the fiscal management in Indonesia. Although there was some downs appeared in 2011-2015, in 2016, the Indonesian Stock Exchange (IDX) has succeed to record an outstanding performance. The Jakarta Composite Index (JCI) also recorded as the second highest growth in Asia. Recently in 2017, the IDX trend has continued to increase, proving the good development and improvement in the public’s confidence in Indonesia’s stock market. Before Indonesia could reach up to this point, Indonesia did not know a thing about capital market in the world. So, here is the history about capital market establishment and development in Indonesia. (Read also: History of Basketball in Indonesia)


As written in history note from a book titled Effectengids that were published by Vereneging voor den Effectenhandel in 1939, the capital market in Indonesia had existed since 1880s. The capital market at that time was securities trading, but was not well recorded yet. Afterwards, on Desember 14th, 1912, the official stock exchange was established in Batavia (currently Jakarta, the capital city of Indonesia). The stocks that were bought and sold at that time was stocks and bonds from Netherlands’s Estate Company that was operated in Indonesia. Besides, stock certificates from America’s company that was issued by administration office in Netherlands were also traded at the stock exchange in Batavia (Jakarta).

By the high development of the stock exchange in Batavia, then in January 1925, the stock exchange was also established in Surabaya, East Java and Semarang, Central Java. However, ahead of the World War II, the political atmosphere in Europe started to heat up. The Dutch-East Indies Government decided to centered all the stock exchanges only in Jakarta and closed others in Surabaya and Semarang. Then, on May 10th 1940, the stock exchanges in Jakarta was also closed because of the World War II and at that time, Indonesia was colonized by Japan. The stock exchanges were stopped at all since Indonesia was colonized by Japan until moments before the independence of Indonesia. (Read also: History of National Exam in Indonesia)

1945-New Orde

Furthermore, after Indonesia declared the Independence of Indonesia on August 17th, 1945, Indonesian people thought that the capital market was needed to reestablished in Indonesia. As a result, the illegal practices of stock exchanges were popped up. After that, the government of Indonesia issued the bonds in 1950. The issue of the bonds reactivated the stock exchanges in Indonesia. Moreover, the Emergency Law was published to prevent the illegal practices that existed at that time. This emergency law then became the Law number 15 in 1952 about the Emergency Law about the Exchange.

In 1958, the stock exchanges were closed once again because of the increased in inflation and followed by policy to decrease rupiah value from Rp1000.- became Rp1.- that were also valid to stocks and bonds of government. This results on the Investors were not interested in these stocks and bonds anymore. When New Order (Orde Baru) Government was established, the economical and political aspects in Indonesia were gradually restored.  The stock exchanges were also reactivated and redeveloped as well. (Read also: History of Catholic in Indonesia)

New Orde-2001

The first official capital markets regulator was established by the government of Indonesia back to 1976. The regulator was in charge to reactivate and promote the development of securities markets in Indonesia. The Jakarta Stock Exchange (JSX) listed on the first share issue on August 1977. Yet, only 24 companies were listed in Indonesia by the end of 1988. The volume of shares traded was also low at that time.

Some reformations have been introduced since 1988 and this led to the privatization of the JSX in April 1992. Moreover, The Capital Markets Supervisory Board (or Bapepam in Bahasa) was also established to assure the fair operation of securities markets in Indonesia. In addition, an Over-the-Counter Market (or Bursa Paralel) and Surabaya Stock Exchange (SSX) were also formed and then merged in July 1995 by the Government of Indonesia. This aimed to establish single exchange that concentrates only on the small-sized and medium-sized companies in Indonesia.

Other reformations were also formed such as increased protection for minority shareholders, improved the disclosure requirements and  larger clarity in term of listing procedures. Finally, there were 316 companies that were listed on the JSX and 205 companies listed on the SSX on December 31st, 2001.

On December 31st, 2001, the JSX consisted of 185 members. The top 20 most active members handled approximately 53 percent of total value traded on the JSX over the period since January until July 2002. Trading in regular market was carried out in board lots of 500 shares for non-banking stocks and 5,000 shares for rights issues, banking stocks and warrants. The following methods; scrip-less trading, foreign ownership, offering and listing procedures, unique features of the listing process set out the key statistics for the JSX since 1997 until 2001 in Indonesia. (Read also: History of Kuta Bali)

Some Changes Needed

The Capital Markets Supervisory Board (or Bapepam) has indicated willingness to change its regulations so that it can reach international practices standard. The organization permitted the first over-allotment option for a private company as part of the Initial public offering (IPO) process. Initial public offering (IPO) or stock market launch is a public offering in which shares of a company are sold to institutional investors that in turn, sell to the general public, on a securities exchange, for the first time. The Capital Markets Supervisory Board also allowed after-market support and stock borrowing to support the over-allotment process.


Indonesia has been one of the best developing markets in US dollar terms since the beginning of 2002. In the period from March to May 2002, the market volumes were highly strong. Nevertheless, the Jakarta Composite Index (JCI), in line with global markets, has fallen since June 2002 and the volumes had also fallen.

In 2002, there have been 16 IPOs in Indonesia, yet only two IPOs that have raised more than US$10 million, showed the limited domestic appetite for primary paper and other problems. In addition, there have been two large secondary market placements. Then, in 2008, on the last day of trading, there was a very big decline in JCI, that the index was plunged by 49%.

There was a bleak performance in Indonesian Stock Exchange (IDX) on last 2015. This decline was a result of the US Federal Reserve’s policy to increase the Fed fund rate by 25 basis points to 0.25%-0.50%. So, the global investors shifted some of their money to the US. The net sell-off on the IDX in 2015 reached 22.55 trillion IDR which was a rare event as it only occurred twice in 12 years, in 2005 and 2013. Another reason of the decline was the high-interest rate offered by the banking industry. Banks still offered high time deposit interest rate with higher returns than the stock market. Only 16 companies conducted IPO and listed their shares on the IDX during the year. This was lower than the previous year of 23 companies. Therefore, these IPOs only succeeded to raise 11.3 trillion IDR in funds.

However, in 2016, the IDX could manage to reverse the trend and reached an all-time high by closing the index at 5,296 or up 15.32% than in 2015. This was definitely higher than most other indices in the Asia Pacific, including Kospi (South Korea), Nikkei (Japan) and Strait Times (Singapore). It was only Thailand’s SET which grew higher at 19.8% in 2016. So, the IDX has increased by 193.36% in the last 10 years while its average daily transaction value was up 30.03% compared to the previous year. Its market capitalisation was also increased by 18.18% compared to that of 2015. Furthermore, the IDX succeeded to attract funds up to 674.39 trillion IDR and $247.5 million USD throughout 2016.

Afterwards, the IDX has continued the increasing in trend and as of early April 2017, the JCI has reached 5.592 points. This showed a highly significant improvement in the public’s confidence in Indonesia’s stock market as it offers good return, thanks to the improved performance of most of its issuers in the previous year. According to some analysts, the JCI will still rise due to supports from the improved performance of issuers in the banking, energy and infrastructure sectors in Indonesia. The increases in oil and commodity prices will lead to the performance of energy and mining companies. Besides, the government’s policy to enhance infrastructure projects all over the country will benefit construction companies and mutual funds investing in the sector.

Currently, the Government of Indonesia has been planning to issue four foreign exchange government bonds in 2017. Moreover, many observers predict that after a two-year low, the number of companies undertaking IPOs in 2017 will rebound. There were 22 companies from various sectors such as property, transportation, retail and others by the of end of March that have planned to launch an IPO in the first semester of 2017. Furthermore, the Financial Services Authority of Indonesia (OJK) has prepared and issued some programmes and policies to support the growth of the stock markets of Indonesia in the last few years until recent.

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