Bambang Pamungkas
Jakarta’s capital market is currently under intense scrutiny from international financial media, notably the Financial Times, which has drawn attention to a troubling phenomenon colloquially known as "saham gorengan" – or "pump-and-dump stocks." This term refers to shares that exhibit wildly inflated valuations and erratic price fluctuations, often attributed to artificial trading activities. The concern is particularly acute as some Indonesian stocks are displaying price-to-earnings (P/E) ratios that far exceed those of global tech giants like Nvidia, a company whose advanced AI chips have propelled its market capitalization to an astounding US$4.6 trillion and earned its shares a P/E ratio of 38. The stark contrast raises serious questions about the fairness, transparency, and overall integrity of Indonesia’s equity market, prompting warnings from global index providers and a concerted, albeit challenging, response from domestic regulators.
The Anatomy of Inflated Valuations: A Disconnect from Fundamentals
At the heart of the international alarm are several Indonesian listed companies whose valuations appear detached from their underlying business fundamentals. One prominent example is PT Dian Swastatika Sentosa Tbk. (DSSA), the third-largest company by market capitalization in Indonesia. Primarily a coal producer, an industry typically characterized by mature operations and relatively low P/E multiples, DSSA’s shares are trading at an astonishing 135 times its earnings. This valuation, as highlighted by the Financial Times, is a figure that even the fastest-growing Silicon Valley startups would struggle to justify, let alone a diversified conglomerate with a significant reliance on the cyclical and capital-intensive coal sector. While DSSA has diversified into higher-growth areas such as renewable energy, data centers, chemicals, and telecommunications, these ventures currently represent only a minor fraction of its overall revenue, with approximately 90% still derived from coal mining. This fundamental mismatch between core business and market valuation underscores the prevailing concerns.
The phenomenon is not isolated to DSSA. An analysis conducted by the Financial Times revealed that eight of the top 25 listed companies in Indonesia boast P/E ratios exceeding 100. Many of these entities are closely associated with powerful conglomerates controlled by Indonesia’s wealthiest tycoons. Another glaring example is PT Barito Renewables Energy Tbk. (BREN), which has rapidly ascended to become Indonesia’s second-largest listed company on the Indonesia Stock Exchange (IDX) with a market capitalization of US$45.2 billion. BREN’s shares are currently trading at a staggering P/E ratio of 358. Controlled by Prajogo Pangestu, Indonesia’s richest individual, BREN has seen its stock price surge by an incredible 679% since its debut in 2023, making it one of the most volatile counters on the market. Despite these figures, Barito Renewables has maintained that its share price movements are "a result of market mechanisms" and has reiterated its commitment to regulatory compliance and upholding good corporate governance and market integrity.
Adding to the list is Moratel, a telecommunications firm also part of the Sinar Mas conglomerate, which recorded a P/E ratio of 247. Even more striking, at the close of 2025, prior to the MSCI warning that triggered a market downturn, Moratel’s P/E ratio stood at an astounding 1,021, illustrating the extreme highs some of these valuations have reached.
The Free Float Conundrum and MSCI’s Warning
A critical factor contributing to these outsized valuations is the remarkably low "free float" of these companies. Free float refers to the percentage of a company’s shares that are available for trading in the open market, as opposed to being held by controlling shareholders, insiders, or strategic investors. In many of these Indonesian cases, a vast majority of shares are concentrated in the hands of controlling shareholders, leaving a very limited supply for public investors to buy and sell. This scarcity can artificially inflate prices, as even relatively small trading volumes can trigger significant price swings, making them susceptible to manipulation. DSSA, for instance, has a free float of just 20%, while BREN’s stands even lower at 12.6%.
The issue of limited free float, coupled with concerns about transparency and potential coordinated trading, prompted a significant warning from MSCI, a leading global index provider, in January. MSCI expressed serious doubts about Indonesia’s investment viability, cautioning about a potential downgrade of its market status from ’emerging’ to ‘frontier.’ Such a reclassification would be a considerable blow to Indonesia’s aspirations as a burgeoning economic power, potentially deterring significant inflows of foreign portfolio investment. MSCI’s concerns specifically highlighted the lack of transparency in ownership structures, fears of coordinated trading behavior, and the pervasive problem of limited free float. While high valuations and low free float do not inherently signify illicit activity, Indonesian regulators, investors, and analysts widely suspect that in certain instances, insiders leverage nominee accounts to trade amongst themselves, thereby creating an illusion of liquidity and manipulating share prices. This practice is the very essence of "saham gorengan."
Investor Reactions and Global Perspectives
The unsettling valuations and market dynamics have not gone unnoticed by global fund managers, who voice a mix of caution and frustration. Gary Tan, a portfolio manager for emerging markets at Allspring Global Investments, expressed his concern to the Financial Times, stating that "it’s very clear on certain valuation metrics that it’s just so far from reality." Tan emphasized that before making investment decisions in Indonesia, his fund meticulously scrutinizes share ownership to ensure that the publicly reported free float accurately reflects the actual shares available for trading in the market.
Ricky Ho, who manages the US$750 million Four Capital fund based in Singapore, starkly observed that "these conglomerate stocks make Nvidia look very cheap." He drew a distinction with highly valued US stocks like Palantir and Tesla, noting that while their valuations are indeed high, they are underpinned by "real liquidity" derived from legitimate trading activity, unlike the potentially artificial liquidity observed in some Indonesian counters.
Chiara Salghini, a portfolio manager at Vontobel Asset Management, whose fund currently holds no Indonesian equities, articulated the broader global investor sentiment. She highlighted the long-standing issue in Indonesia where "there are some families that control the market, control the companies, and the minority shareholders are in a weaker position." Salghini underscored that global markets are inherently wary of investing in companies characterized by thin liquidity, extremely low free float, and transparency standards that fall short of those in other jurisdictions. She further stressed that for Vontobel to reconsider investing in Indonesia, the government would need to significantly enhance transparency and demonstrate sustained improvements in macroeconomic indicators.
Regulatory Countermeasures and the Path Forward
Recognizing the gravity of the situation and the potential ramifications for its capital market’s international standing, Indonesian authorities have initiated several measures aimed at addressing the concerns raised by MSCI and the broader investor community.
The Indonesia Stock Exchange (IDX) has proactively identified and highlighted companies with highly concentrated share ownership. For instance, the IDX publicly disclosed that a mere handful of shareholders control 97.3% of Barito Renewables’ shares and 95.76% of DSSA’s shares, underscoring the severe free float limitations.
The Indonesian government has also announced new regulations, including a crucial step to double the minimum free-float requirement for listed companies to 15%. While this is a significant move towards increasing market liquidity, regulators have granted companies a three-year grace period to comply, allowing for a phased transition. Alongside this, rules regarding shareholder disclosure have been tightened to promote greater transparency.
The Otoritas Jasa Keuangan (OJK), Indonesia’s financial services authority, has taken enforcement actions, sanctioning several securities firms for alleged breaches of capital market regulations. More broadly, the OJK has confirmed that it is actively investigating "various potential market violations." These investigations encompass a wide spectrum of illicit activities, including "market manipulation and other trading practices aimed at creating a false or misleading appearance of trading activity." The OJK clarified that the scope of its investigations extends beyond the general understanding of "saham gorengan," focusing specifically on identifying behaviors that infringe upon capital market rules or compromise the integrity and fairness of price formation within the market. However, the OJK has also stated that, as of now, no specific investigations targeting particular conglomerates or their shareholders have been publicly announced.
Broader Implications for Indonesia’s Economy and Investment Landscape
The issues surrounding "saham gorengan" and the associated market integrity concerns carry profound implications for Indonesia’s long-term economic trajectory. As Southeast Asia’s largest economy, Indonesia has ambitions to attract significant foreign direct investment and position itself as a key player in the global economy. A capital market perceived as opaque, susceptible to manipulation, and lacking sufficient investor protection can severely undermine these goals.
The potential downgrade by MSCI from ’emerging’ to ‘frontier’ market status would not only diminish Indonesia’s appeal to large institutional investors who often restrict their investments to emerging or developed markets but also increase the cost of capital for Indonesian companies seeking to raise funds internationally. It signals a heightened risk perception that can deter both portfolio and direct investments, impacting job creation and economic growth.
The prevalence of concentrated ownership and low free float also stifles true price discovery, where market prices accurately reflect a company’s intrinsic value based on supply and demand from a broad base of informed investors. When prices are easily manipulated, it creates an environment of uncertainty and distrust, making it difficult for legitimate businesses to attract long-term capital and for investors to make sound decisions. The government’s and regulators’ efforts are commendable, but their effectiveness will hinge on rigorous enforcement, consistent oversight, and a clear commitment to fostering a level playing field for all market participants. The three-year grace period for free-float compliance, while pragmatic, must be carefully monitored to ensure genuine adherence and not simply a delay tactic.
Ultimately, the integrity of a nation’s capital market is a cornerstone of its economic health and international reputation. By addressing these deep-seated issues of transparency, corporate governance, and market fairness, Indonesia can not only safeguard its existing investor base but also unlock its full potential to attract the global capital essential for its continued development and prosperity. The ongoing scrutiny serves as a critical call to action, demanding sustained and resolute efforts to build a truly robust and trustworthy financial ecosystem.
