In an Opinion Piece in Bisnis.Com, Patria, a Financial Services Authority Analyst – Analyst at The Financial Services Authority writes that despite the dire predictions of a global economic recession in 2023, the number of investors in the Indonesian capital market is still increasing.
He writes that the Indonesian Central Securities Depository (KSEI) has noted that the number of investors as of September 2022 was 9.78-million people, an increase of 2.48-percent compared to the previous month.
This increase is indeed not as intense as at the end of 2021, where the number of investors doubled compared to the previous year to a total of 7.48-million people, but this proves that our capital market still has potential and is able to attract new investors.
Based on this data, the demographics of investors are still dominated by young investors where 60-percent of them are under 30-years old. With such a large proportion, this group of investors has market power that needs to be taken into account, although in terms of assets it is still below other age groups.
With the dominance of these new and millennial investors, Indonesian capital market players must pay close attention to the investment patterns of this group. In some cases, new investors and millennials are heavily influenced by trends in the community and influencers on social media that can cause stock prices to rise quite high and exceed their fair value, including in stocks of technology start up companies and digital banks.
Although fundamentally the performance of these issuers is still quite good, in extreme cases the influence of social media trends must be watched out for. To understand this, we can learn from the movement of GameStop stocks in early 2021 in the US.
GameStop is a video game outlet company whose performance has deteriorated due to competition from online stores and the pandemic. With predictions that the stock price will continue to fall, hedge fund companies are short-selling GameStop shares to make a profit. However, several stock influencers who are members of the Reddit social forum have succeeded in influencing newbie retail investors to buy GameStop shares with the belief that if GameStop’s stock value rises it will trigger a short squeeze, in which hedge funds that have short positions on GameStop will sell at a lower price. large volume to close positions, which will result in the value of the stock going up.
The success of a group of budding investors on Reddit forums to encourage the purchase of GameStop shares then went viral on social media and increasingly influenced buying by new investors. GameStop shares are also gaining popularity, driven by influential figures such as Elon Musk and Chamath Palihapitiya. On January 28, 2021, GameStop’s stock price peaked at USD 500-per share, well above its valuation at the beginning of the month which was only USD 17.25, with the majority of stock buyers being young and novice investors.
At this peak position, the trading platform Robinhood, which is the means by which the majority of retail investors buy GameStop shares, experienced liquidity problems due to high transactions, which halted the transaction to buy GameStop shares. As a result, on February 2, GameStop’s stock price dropped to below USD 100-per share.
Some parties say the value lost due to the decline reached USD 27-billion, with many losses experienced by novice investors. For several months after that, GameStop’s stock price continued to experience volatility. The stock price that no longer reflects the value of the company causes many investors to make transactions based on speculation, causing huge losses.
In Indonesia, high stock movements by influencers and social media have actually been anticipated in the Capital Market Law which prohibits all parties from submitting misleading material facts to influence other parties to buy or sell securities. In addition, OJK and the Indonesia Stock Exchange also have policies to manage market volatility through the prohibition of short selling, asymmetric auto-rejection, and trading halts under certain conditions.
However, learning from the GameStop case, what is more important and needs to be supported by all parties is that novice investors must continue to be educated about investment sustainability.
A good knowledge of the fair returns and risks in the capital market is required as well as an understanding that the capital market is not a place to seek instant results from speculative transactions. Investors also need to prioritize fundamental analysis and long-term investment in buying shares, so that they are not affected by temporary trends.
Educational events such as the recently held Capital Market Summit & Expo 2022 should continue to be encouraged. In the end, with increasing good and responsible investment by investors, our capital market will be stronger so that it can advance the national economy. The presence of new investors will also strengthen the domestic investor base so as to reduce market vulnerability to global economic influences.