Indonesian bourse to adopt new rules to avoid index crashes

March 12, 2020

Indonesia’s stock exchange tightened its trading halt mechanisms on Wednesday to trigger a cessation of the main stock index more quickly as it moves to protect against coronavirus and oil shock volatility.

Indonesian bourse to use circuit breakers for avoiding major index falls. Under the new rules, a 30-minute halt would kick in if the index dropped more than 5%, compared with the 10% fall that was previously allowed before trade was stopped for the same period of time.

The changes were made “to maintain securities trading that is orderly, reasonable and efficient,” Indonesian Stock Exchange (IDX) said in a statement.

The main stock index posted its biggest single day loss of 6.6% in more than eight years on Monday, plummeting along with markets around the world. That brought the index’s decline for the year to 18.5%, though stocks have since regained some of the losses.

The new circuit breakers for the main index came a day after the IDX made similar changes to trigger mechanisms for individual stock prices. Trade in a stock will now be halted at 10%, down from a previous range of 20-35%.

The volatility caused by the virus outbreak has caused foreigners to flee Indonesia’s high-yielding bond and stock markets and forced authorities to defend the rupiah. Outflows from the stock market so far this year totaled 7 trillion rupiah ($488.15) million, exchange data showed, and the central bank estimated total capital outflow at 40.2 trillion rupiah.

Isnaputra Iskandar, an equity analyst with Maybank KimEng in Jakarta, said the effectiveness of the changes would be tested by the market.

“If the market is very volatile, some people may only panic because they can’t exit the market,” he said, noting that trading of some stocks was halted almost daily during the 2008 financial crisis.

Andry Taneli, a portfolio manager with Ciptadana Asset Management, said the immediate focus for the market was the global coronavirus epidemic and Indonesia’s response to the outbreak in its own country.

“The market policies would help, but the main concern is really about coronavirus and how the government will handle the cases and prevent further spread,” he said.

Indonesia has reported 27 cases of coronavirus, including one death, as of Wednesday, a relatively small figure for its population, which has sparked some concern among medical professionals about the risk of undetected cases.

In other changes, the Financial Services Authority loosened buy back rules from Tuesday, allowing companies to buy back shares worth up to 20% of capital shareholder approval.

Twelve state-owned companies are planning buy backs worth up to 8 trillion rupiah in total, a senior government official said.

Meanwhile, Indonesian President Joko Widodo is weighing an audacious 2032 Olympics bid centred on the country’s not-yet-built new capital and is in early talks with SoftBank chief executive Masayoshi Son and other investors for support, sources said.

The world’s fourth-most-populous country unveiled in August plans to build a $34 billion “smart and green” new capital on the forested island of Borneo to replace the crowded, polluted megacity of Jakarta, which is slowly sinking into the sea. According to the head of the Indonesia’s investment board (BKPM), the government is evaluating how to make the unnamed new capital its candidate city for the 2032 Olympics. It had already submitted a bid for Jakarta, and it is not clear whether the new plan would include any events there.

BKPM chief Bahlil Lahadalia told Reuters that the tentative plan had been presented to some investors.

Two people with knowledge of the matter told Reuters that top Indonesian officials had raised SoftBank’s possible backing of the Olympics plan with Son in Jakarta in late February. The people spoke on condition of anonymity as they are not authorised to speak to the media.

Widodo enlisted the SoftBank founder this year, along with former British Prime Minister Tony Blair and Abu Dhabi Crown Prince Sheikh Mohammed Bin Zayed al Nahyan, to act as advisers and help attract funding.

Son met with Widodo and Blair about the new capital on Feb. 28, and the discussion included sports facilities but not the Olympics, according to a presidential spokesman, who did not answer further questions.

According to the sources, Son is open to the Olympics proposal, which would see SoftBank provide assistance to the Games and SoftBank-backed Southeast Asian ride-hailing firm Grab act as a “mobility partner.”

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