For the best or for the worst ? : Taking stock of the retail investment craze in Indonesia
March 3, 2022
JAKARTA – Stock market investing used to be a niche business, but as it grows in popularity with everyday people, experts warn of the risks.
Not so long ago, investing was a daunting prospect for ordinary Indonesians. The specialist knowledge and lack of resources to develop it, combined with the horror stories of investors losing everything in minutes, have deterred many would-be amateurs.
In recent years, however, the stock and cryptocurrency markets have grown in popularity. The last two years in particular have seen an increase in retail investors, particularly millennials.
In fact, the number of stock market investors in the country has increased by around 65.74% during the pandemic. CNBC reported that in September last year, a record 6.43 million Indonesians invested in the stock market.
Cryptocurrency markets have seen similar growth. Last October, bisnis.com reported that 9.5 million people had invested in crypto.
What is this increase due to?
Ease and inclusiveness
Investment apps have been the gateway to trading for many retail investors.
Bayu from Jakarta, who works at a financial company and chose to use a pseudonym for this article, said he started participating in an algorithmic trading program in 2020, after a close friend bragged about a daily profit of 0.4 to 1%. Before joining the trading app, Bayu had never done retail investing.
Eugene Giovan, a resident of Malang who owns a transportation business, also joined an algorithmic trading program in 2021, after a neighbor shared how much he earned from the program.
In the first days of joining the trading service, Bayu discovered that the trading program he had invested in had been shut down by the authorities because he did not have the required license from the Commodity Futures Trading Regulatory Agency (BAPPEBTI). .
“The company [representatives] told me they were trying to get a license in Indonesia. They also promised to return the money to me, but there has been no update yet,” Bayu said, adding that if he is not paid back, he will lose Rs. 18-19 million.
Eugene also learned shortly after investing that the algorithmic trading platform he had joined was one of many of its kind that had been banned in Indonesia on fraud charges.
Bayu now chooses to focus on balanced long-term investments rather than short-term trading. “From what I’ve learned, you shouldn’t be tempted by the high profit or gain that trading tools offer you. I can’t say which investments are safe enough for you, but you should check the company track record,” Bayu added.
In the train
Prathama Nugraha, a Jakarta-based entrepreneur with a decade of investment experience, said that in general, fraudulent “investment” platforms promote instant and effortless income. They used slogans like “Make money doing nothing” or “Do you want to succeed at a young age?” and accessible influencers to attract young people.
“They sometimes have random or even established people to promote their platforms. Sometimes these people show off their sports cars or even their expensive watches to get more attention,” Prathama said.
“Some platforms will tell people to persuade their friends. It’s just multi-level marketing, and you’ll get a commission once you get another customer in your circle using referrals. The more customers you have, the more profit you will get,” he added.
Andy, an investor with seven years of experience in the stock market, added that algorithmic trading platforms are often “gambling”.
“I joined a gambling game in 2015. So what happens in gambling is that we generate profits from the available members. [Some] members give their money to others and it goes on like that. This type of fake investing will always be part of the industry, and people need to be equipped with the right information,” said Andy, who left the “money game” in 2019.
‘Algorithm’ or the same old brokers?
Vandy, who also chose to use a pseudonym and has run a brokerage for nearly 20 years in central Jakarta, said: “We can manually insert any number into the report you get from a algorithmic trading program”.
“It’s all a scam,” he said, acknowledging that even his company routinely engages in such practices.
Vandy said companies like his could get away with it because customers had no legal basis to stand on and the only way to recoup their investment was through intimidation.
“We brought in a former client, shouting and bringing in hired thugs. It scared us and we transferred the amount he lost on the same day to him,” Vandy said with a laugh.
Kevin Winsonata, portfolio manager and investment consultant in Jakarta, said people have misunderstood the concept of trading and investing.
“Trading is different from investing. The former is a short-term investment, while the latter is a long-term investment,” Kevin explained, adding that in real trading, people don’t always profit.
“You should check the trading tools listed with the Financial Services Authority (OJK) or BAPPEBTI,” Kevin added.
Theo Derick, co-founder of Coffee Meets Stock, a Jakarta-based stock advisory platform and community since 2019, suggested those looking for low-risk investments choose a mutual fund or government bonds. If someone was looking for a medium to high risk investment, he added, they would suggest the stock market or the cryptocurrency market.
Cryptocurrencies have also attracted many Indonesian investors.
Jakarta-based entrepreneur Christoper Vittorio Simon started investing in crypto in 2021 with his peers.
“I invest with some of my friends. I have now recovered my initial investment. Last year I started investing with Rp 130 million [$ 9,059.01]and we made a profit in the last two or three months,” Christopher said.
“I used the profits to start my business, an online clothing store called drip.experiments. I knew from the start that we might not get our profits instantly,” he continued.
But major losses are also a distinct possibility.
A 30-year-old Jakarta-based retail and food industry professional who goes by the name David shared his experience investing in cryptocurrencies.
“In May 2021, I lost [US]$3 million, the price of Bitcoin at the time dropped from $60,000 to $30,000,” he said. “I chose the wrong strategy. As I was looking for more gain, I bought coins with the assets I already had. But later the market crashed significantly, so I lost a lot of money,” he continued.
Good or bad?
Theo, the co-founder of Coffee Meets Stock, said people should know the risks before investing and noted that diversification is important. “With diversification, you can actually reduce the risk of your investment,” Theo noted. “You must continue to educate yourself about the investment market you choose. As the market is constantly changing, you should be aware of this. Finally, it’s always important not to be too greedy for profit,” David said.