Challenges and Prospects in Investing in the Indonesian Stock Market: A Focus on the Consumer Goods Sector

Abstract

Indonesia was one of the fastest growing ASEAN countries as well as the world. The outlook was driven by strong economic fundamentals including high GDP growth, a rising middle class, and increasing urbanization. The Indonesian Stock Market served as a major entry point for foreign investors. The Jakarta Composite Index (JCI), the primary measure of Indonesia’s stock market performance, showed high growth historically and a positive outlook moving forward. This study aimed to evaluate the challenges and opportunities in Indonesia’s stock market, specifically for foreign investors whose main purpose was value investing. It focused on the Consumer Goods Sector, as it is the most attractive sector in the market. Top-down and fundamental analyses were conducted to assess the market and identify investment entry points. Upon analysis, it was concluded that the sector would grow and this growth would be driven by increasing household spending, positive CCI, increasing disposable income, and changing consumer lifestyles. Food, beverage and pharmaceutical subsectors showed the highest growth potential while the top picks in terms of investment entry points were INDF, ICBP and KLBF. Though the sector remained attractive, foreign investors should be wary as investing across borders entails challenges including transaction costs, currency risk, country risk and legal risk.