Deep fried stocks’ mysterious 1,000% gains are confusing local traders in Indonesia; here’s what happened

Popularly known as ‘deep fried’ stocks among local traders, these have recorded a seemingly concentrated ownership, low trading volume, scant analyst coverage and elevated valuations relative to peers. The swing of 1,000 per cent by the counted Indonesian firms is about 10 per cent of total stocks listed, a higher proportion than in neighboring Thailand, Malaysia, Singapore, Vietnam and the Philippines, according to Bloomberg.

This has resulted in putting investor confidence at stake in Indonesia’s nearly $640 billion stock market, which has become much illiquid that it has forced some companies to resort to higher-cost bank loans as a way to raise capital. Last year, the International Monetary Fund (IMF) said in a report that Indonesia’s ‘shallow’ financial markets are a longstanding challenge for growth. The ratio of the nation’s stock market cap to GDP is also the lowest among Southeast Asian peers.

Even though wild stock swings for illiquid shares are nothing new in emerging markets, the moves have become so extreme in Indonesia that regulators introduced a new watchlist board to quickly spot what they perceive as troubled companies as a way to protect investors. 

The list will include firms with no revenue growth, low share prices, thin liquidity and undergoing debt restructuring, among other factors. Some traders are pushing for authorities to do even more, while President Joko Widodo has urged regulators to boost supervision of possible market manipulation, reported Bloomberg.

“We need the regulators to step in,” Jerry Goh, an investment manager covering Asian equities at abrdn Asia Ltd told Bloomberg. Not all shares that are volatile are considered deep fried stocks, though traders have expressed confusion over the growing levels of big swings.

The results of the sudden stock gains have propelled the wealth of a handful of ultra wealthy tycoons. Low Tuck Kwong, a billionaire who controls PT Bayan Resources, became one of Asia’s richest men after shares shot up more than 2,20 per cent over six weeks at the end of 2022. A nearly 14,000 per cent surge in shares of DCI Indonesia in the five months after debuting in early 2021 put majority owners Otto Toto Sugiri and Marina Budiman into billionaire status. 

The Indonesia Stock Exchange has already imposed intraday trading limits and automatic rejection of certain bids and offers if they veer too far away from the asking price. Meanwhile, the financial services authority uses monitoring tools like trading halts or suspensions to cool any unusual market activity, according to capital market supervisor Inarno Djajadi. Still, neither the exchange nor the regulator have indicated how they plan to filter and investigate the anomalies among the 800-odd stocks in the country, added Bloomberg.

Updated: 17 Jun 2023, 06:46 PM IST