#1INDONESIA MARKET REPORT By Association of Indonesian Securities Companies APEI Taipei, October 2013 1#2• Economic Performance ● Capital Market Performance ● Regulatory Developments ● Prospect for Indonesia Securities Industry & Challenges Highlights APEI 2#3Economic Performance • Global credits have got off strong start since early 2012 buoyed by the news of a deal in the US Congress to avoid the fiscal cliff supported by manufacturing data from some Asian countries. IMF World GDP (%) Economic Actual Projected • • . . Global investors are keen to increase their exposure to the world's fastest growing economies, especially in the emerging Asia Indonesia economy slowed for the 4th consecutive quarter to 5.81% yoy in 2Q-2013 down from 6.02% yoy recorded in the 1Q-2013 as government spending is not enough to offset the slowing private sector consumption and investment. The growth rate is mainly driven by 11.5% expansion in transport and communication sector, 8.07% in financial and real estate, 6.88% in construction, 6.6% in electricity, gas and water and 6.5% in trade, hotel and restaurants and 5.9% in manufacturing. Foreign reserve decreased to $98 billion by June 2013 from $112.8 billion at the end of 2012. The exchange rate of IDR against USD keeps depreciating from IDR8,991 (2010) to IDR8,768 (2011), IDR9,638 (2012) and further down to IDR9,929 by June 2013 and IDR 11,461 by end of September 2013 The Central Bank increased BI rate to 7.25% in September 2013 after having raised it by 50bps in August. The central bank attempts to stabilize the currency, control the inflation rate and the current account. Source IMF World Economic Outlook, July 2013 Outlook 2012 ||2013 2014 Asia 6.5 6.9 7.0 Japan 1.9 2.0 1.2 China 7.8 7.8 7.7 India 3.2 5.6 6.3 ASEAN-5 6.1 5.6 5.7 United 2.2 1.7 2.7 States Euro Area -0.6 -0.6 0.9 Russia 3.4 2.5 3.3 Latin America 3.0 3.0 3.4 APEI 3#4Economic Performance Indicator 2008 2009 2010 2011 2012 Jun-2013 Population (million) 229.0 231.8 237.6 241.1 244.7 246.5 GDP Growth Rate 6.0 4.5 6.1 6.5 6.2 5.8 (% y-o-y) Export (USD million) 139,606 119,646 158,074 200,788 188,496 90,901 Import (USD million) 116,690 88,714 127,447 166,005 179,878 89,901 Surplus (USD million) 22,916 30,932 30,627 34,783 8,618 1,000 Exchange Rate-end 10,950 9,425 8,991 8,768 9,638 9,929 period (IDR/USD) Foreign Exchange 51,639 66,105 96,207 122,671 112,781 98,095 Reserve (USD million) Unemployment Rate 8.39 7.87 7.14 6.9 6.8 6.6 (%) Source: BI, BPS APEI 4#5Source: BI- Indonesia Central Bank Economic Performance Source BI - Indonesia Central Bank ■ In September 2013, Indonesia's central bank increased their benchmark BI rate by 25 bps to 7.25%, to fight against increasing inflation and weakening IDR against main currencies. Bank Indonesia also raised the overnight deposit facility rate, known as FASBI, to 5.5% in September 2013. August 2013 inflation was recorded at 8.79% y-o-y. This is the highest level since 2009 due to expected fuel price hike to be taken by the Government in the second semester prior to Idul Fitri holidays. The rupiah fell to a four year-low of 11.461 to the U.S. dollar by the end of September 2013, even though the central bank was suspected to have sold around $200 million of dollars to calm the market. Gradual but persistent weak data on Indonesia, started with slower economic growth, quickened inflation, widening trade deficit, and lastly wider current account deficit has, sent bonds, stock, and IDR currency fell significantly. APEI#6APEI (In US$ million) 140,000 120,000 Exchange Rate vs. Foreign Exchange Reserve (Q1 2008 - Q2 2013) 100,000 80,000 60,000 40,000 20,000 Mar-08 Jun-08 Sep-08 Dec-08 Source :BI- Indonesia Central Bank Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Economic Performance Reserves Jun-11 Sep-11 Dec-11 Exchange Rate Capital inflow to Indonesia has increased Foreign Exchange Reserve. On April 2011 Indonesia Country Rating was upgraded by S&P to BB+ (one level below investment grade), marked with positive outlook, due to it's "resilient" economy and improving finances. Later, in early of January 2012, Moody's also increased the rating to Baa3. Mar-12 Jun-12 Sep-12 Dec-12 00 6 Mar-13 Jun-13 14,000 12,000 10,000 8,000 6,000 4,000 2,000 (IDR/US$)#7Capital Market Performance 2011 1,223,441 2012 1,116,113 Jun-13 1,716,816 Stock Market The recovery of Indonesia economy reflected by the performance of the Jakarta Composite Index (IDX), Listed Issuers and Market Capitalization. On 31st December 2012, JCI increased by 12.94% to 4,316, with a record high at 5,124 on 20th May 2013 before it declined to 4,818 on 30th June 2013 and even to 4,316 on 30th September 2013 Total Trading Value Performance of Various Global Stock Markets as of 30 Sept 2013 (IDR Billion) - 8.77% + 53.82% Country Daily Average Trading Value Brazil Index IBOVespa Last Mtm Ch.% Ytd Ch.% YTD Change % Chart 52,338.19 4.66% -14.13% 4,953 4,537 8,541 (IDR Billion) China SHANGHAI 2,174.66 3.64% -4.16% Composite Index - High 4,193.44 4,375.17 5,021.61 India SENSEX 19,379.77 4.08% -0.24% Low 3,269.45 3,654.58 4,418.87 Indonesia JCI 4,316.18 2.89% -0.01% Close 3,821.99 4,316.69 4,818.89 South Korea IKOSPI 1,996.96 3.66% 0.00% Listed Issuers (IDR Billion) 436 Market Capitalization 3,537,294 457 4,126,995 472 4,739,604 Singapore FSSTI 3,167.87 4.59% 0.02% + 16.67% + 14.84% | Hong Kong HANGSENG 22,859.86 5.19% 0.90% Portugal PORTUGAL PS120 5,953.51 2.51% 5.28% IDX - JCI Italy FTSEMIB 17,434.86 4.51% 7.14% 6000 5000 4000 3000 2000 1000 0 Netherlands AEX 374.92 3.30% 9.40% 4,818.8 United Kingdom FTSE100 6,462.22 0.77% 9.57% Greece ATHEX COMP 1,014.06 12.68% 11.69% Spain IBEX35 9,186.10 10.80% 12.47% Germany DAX 8,594.40 6.06% 12.90% France CAC 4,143.44 5.33% 13.80% United States DJIA 15,129.67 2.16% 15.46% Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Japan NKY 14,455.80 7.97% 39.06% Source: WSJ Source: IDX APEI 7#85,500 5,000 4,500 Capital Market Performance Jakarta Composite Index and Capital Market Milestones 1992 - 27 September 2013 20-May-2013 Highest Index 5,214.976 6-Aug-1996 Founding of KPEI 554.790 4,000 3,500 3,000 2,500 2,000 24-Jul-1995 Merging process of SSX into Bursa Paralel Indonesia 509.532 22-May-1995 JATS 461.389 13-Jul-1992 Privatization of JSX 321.544 1,500 1,000 500 23-Jul-1997 Financial Crisis 28-Mar-2002 Implementation of Remote Trading 481.775 30-Nov-2007 21-Jul-2000 Scriptless Trading 512.617 23-Dec-1997 Founding of Consolidation of the SSX into JSX to become the IDX 2,688.332 6-Oct-2004 Launching of Stock Option 856.060 KSEI 397.031 9-Sep-2002 T+4 to T+3 Settlement 430.271 8-Oct-2008 Suspend Trading 1,451.669 28-Oct-2008 Lowest Index in 2008 1,111.390 02-Jan-2013 New Trading Hours 4,254.816 2-Mar-2009 JATS Next G 1,256.109 718.189 1992 Source IDX 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 APEI 2012 2013* *) 27 September 2013 8#9Capital Market Performance Jakarta Composite Index 5,500 2002 27 September 2013 - 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 691.895 424.945 500 1,000.233 1,162.635 1,805.523 2,745.826 2,534.356 1,355.408 4,316.687 3,703.512 4,423.719 3,821.992 -50.64% 8.39% 62.82% 44.56% 16.24% 55.30% 52.08% 86.98% 46.13% 3.20% 12.94% 2.48% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* *) 27 September 2013 9 APEI#10Capital Market Performance Distributions of Tradeable Stocks* Based on Investors' Nationality (2010 - August 2013) August 2013 2012 2011 2010 Investors' Nationality (Equity Only) (Mill. USD) % (Mill. USD) % (Mill.USD) % (Mill.USD) % Local Investor 99,911 44.22% 107,613 41.21% 92,558 40.14% Individual 13,436 13.45% 14,480 13.46% 16,647 17.98% 13,827 78,138 37.20% 17.70% Institution 86,367 86.44% 93,003 86.42% 75,783 81.88% 64,150 82.10% Others 107 0.11% 130 0.12% 129 0.14% 160 0.20% Foreign Investor 126,052 55.78% 153,504 58.79% 138,055 59.86% 131,909 62.80% Individual 2,428 1.93% 3,221 2.10% 2,614 1.89% 341 0.26% Institution 84,549 67.07% 106,018 69.07% 100,123 72.52% 97,483 73.90% Others 39,075 31.00% 44,265 28.84% 35,318 25.58% 34,086 25.84% TOTAL 225,963 261,117 230,614 210,047 Institutions includes Insurance, Mutual Fund, Pension Fund, Financial Institution, Corporate, Securities Company, Foundation Source Data : Indonesia Central Securities Depository (KSEI) APEI *) Scriptless Stocks 10#111,703 1,409 Capital Market Performance Foreign Investor Activities At Indonesia Stock Exchange: 2008 - 27 September 2013 2,337 2,804 2008 2009 2010 2011 2,043 1,714 988 976 610 280 479 333 273 484 186 350 159 276 Jan 241 Mar May Aug Feb May Jun 43 Nov 13 591 1,163 GL 2013 188 74 May Jun Jul Aug 38 Feb Apr Jun Jul Sep Oct Nov Dec (260) (30) 2012 Jan Mar Apr Jul Aug Sep Oct Dec Jan Feb Mar Apr Sept (36) (241) (165) (208) (320) (443) (521) (772) (804) Figures in Million USD APEI (985) (2,028) 11#12Capital Market Performance Market Capitalization and Trading Value by Industry 27 September 2013 APEI Market Capitalization Finance (79) 23.4% Trade, Services & Investment (110) 11.8% 18.4% 19.3% Agriculture (21) 2.4% 2.1% Infrastructure, Utilities Trading 6.1% Mining (38) 6.5% & Transportation (46) 13.5% Value 15.4% 6.8% 7.6% 6.9% ■Basic Industry And Chemicals (61) ■Property And Real Estate (55) 6.5% 16.0% 8.6% 7.9% Miscellaneous Industry (45) 20.9% Consumer Goods Industry (37) 12#13Capital Market Performance Bond Market In August 2013 total bond outstanding was circa USD 104.5 billion which was represented by Government bonds of 81% and Corporate bonds of 19%. Corporate Bond Government Bond Outstanding Daily Average Transactions Year Listed & Traded (Billion USD) Volume (Million USD) Year Frequency (X) Outstanding Listed & Traded (Billion USD) Daily Average Transactions 2003 6.86 5.30 12 2003 Volume (Million USD) 162.68 Frequency (X) 45.53 51 2004 8.05 2004 238.12 6.86 21 44.67 112 2005 10.15 6.48 24 21 2005 220.92 41.20 100 2006 15.09 2006 132.82 7.40 11 45.73 134 2007 30.96 9.25 63 2007 553.86 52.03 227 2008 22.61 7.63 50 2008 395.24 54.20 206 2009 15.68 8.50 40 2009 310.31 55.31 218 2010 40.10 12.71 70 2010 748.54 70.64 381 2011 55.80 16.03 73 2011 867.01 78.91 433 2012 67.69 19.70 103 2012 843.82 85.31 552 2013* 19.59 71.52 90 2013* 84.86 672.94 461 *) August 2013 APEI 13#14Capital Market Performance Bond Ownership Distributions Corporate Bond Ownership August 2013 (in Million USD) Government Bond Ownership BI Individual 448.44 Others Foundation 417.11 Securities Individual 2,126.51 2.38%. 2.21% 270.93 .1.44% Company 85.86 0.45% Corporate Pension Fund 3,496.89. 4% 3,446.54 2.51% 4.1% Securities Company 100.70 0% 1,305.78. 6.92% Others 3,667.15. 4% APEI Insurance 2,670.05 14.14% Pension Fund 5,592.98 29.63% Financial Inst 3,989.89 21.14% Mutual Fund 4,095.87 21.70% Mutual Fund 4,063.53 5% Insurance Company 11,414.32 13% Foreign 25,998.72 31% Bank 30,551.08 36% Source: Indonesia Central Securities Depository (KSEI) Source: Indonesian Debt Management Office (DJPU)#15250 200 Mutual Fund Capital Market Performance The industry enjoyed favorable development up to 2012 and it showed consolidation by June 2013 Composition of mutual funds NAV by type of investment as of July 2013 which totalled at USD 18.89 billion 212 202 194 Sharia-Protection. 0.06 0.33% Sharia-Mixed 0.25 1.31% Sharia-Equity. 0.12 0.63% Sharia-Fixed Income Sharia-money Index Sharia-Index market 0.14 0.00 0.73% 0.01% ETF-Fixed Income 0.04 0.20% 0.00 0.02% ETF-Equity 153 150 117 114 115 0.42 2.23% Money Market, 1.18 99 92 6.26% Mixed 100 82 74 70 2.29 12.13% 61 52 54 Equity 7.72 50 36 40.86% 29. 21 2005 2006 2007 2008 2009 2010 2011 2012 Jun-13 NAV (IDR trillion) Outs Units (billion) Source: OJK APEI Fixed Income 2.94 15.55% Capital Protection Fund 3.67 19.42% Source: OJK 15 0.03 0.13% ETF-Index 0.035 0.19%#16Capital Market Performance New Issues and fund raising The industry enjoyed favorable development up to 2012 and the first semester in 2013 and it showed consolidation trend by the second semester. NEW ISSUES EQUITY 2009 2010 2011 2012 Jun-13 IPO (IDR trillion) 3.85 29.68 19.59 10.14 10.11 New issue structure by equity related products i.e. rights, warrants; and bonds issued by corporations and governments in 2012 Rights (IDR trillion) 8.56 48.16 42.14 18.19 18.46 Others (IDR trillion) 2.50 1.87 0.58 1.64 1.94 Sub Total 14.91 79.71 62.31 29.97 30.51 BONDS IPO Corp (IDR 45.93 69.45 31.14 trillion) IPO Govt (IDR trillion)| Sub Total Total 29.68 94.57 122.53 124.25 161.60 139.16 241.31 271.36 39.07 Bonds & Sukuk, 89.91% Equity, 10.09% 163.12 209.05 197.55 112.15 267.00 143.29 296.97 173.80 Equity Bonds & Sukuk Source: IDX APEI 16#17Capital Market Performance JCI in Comparison to Regional Indices Performance 2011 27 September 2013 2011 2012 Change 11-12 Change 2013* 12-13* TSE Tokyo Stock Exchange (TSE) 8,455.350 10,395.180 22.94% 14,760.070 41.99% DJI Dow Jones (DJI) 12,217.560 13,104.140 7.26% 15,328.300 16.97% FT100 UK (FT100) 5,572.300 5,897.810 5.84% 6,523.370 10.61% PSE Philippine Stock Exchange 4,371.960 5,812.730 32.95% 6,379.810 9.76% BM Bursa Malaysia (BM) 1,530.730 1,688.950 10.34% 1,776.160 5.16% IDX Indonesia Stock Exchange (IDX) 3,821.992 4,316.687 12.94% 4,423.719 2.48% HKeX Hong Kong Exchanges (HKeX) 18,434.390 22,656.920 22.91% 23,207.040 2.43% SET Stock Exchange of Thailand (SET) 1,025.320 1,391.930 35.76% 1,417.490 1.84% SGX Singapore Exchanges (SGX) 2,646.350 3,167.080 19.68% 3,210.180 1.36% BSE Bombay Stock Exchange (BSE) 15,454.920 19,513.450 26.26% 19,726.860 1.09% KRX Korea Exchanges (KRX) 1,825.740 1,997.050 9.38% 2,011.800 0.74% SSE Shanghai Stock Exchange (SSE) 2,199.420 2,269.128 3.17% 2,160.030 -4.81% *) 27 September 2013 APEI 17#18Capital Market Performance Market Cap Among Asia-Pacific Region Exchanges 4,570 3,372 3,278 26 September 2013 (Billion USD) 1,374 1,171 1,044 588 482 394 385 220 TSE HKEX SSE ASX KRX BSE SGX BM SET IDX PSE IDX : Indonesia Stock Exchange KRX : Korea Exchange SET Stock Exchange of Thailand BM : Bursa Malaysia SGX : Singapore Exchanges TSE : Tokyo Stock Exchange HKEX Hong Kong Exchanges SSE Shanghai Stock Exchange HKEX SSE 19.98% 19.42% ASX 8.14% TSE 27.08% KRX 6.94% BSE Mumbai Stock Exchange Source Bloomberg BSE ASX : Australia Stock Exchange PSE : Philippine Stock Exchange PSE 1.30% 6.18% SGX \BM IDX- SET 3.48% 2.86% APEI 2.28% 2.33%#19APEI Singapore Malaysia Source: CEIC & Bloomberg 254% 179% 224% 137% 165% 151% 86% 77% 102% 87% 106% 101% Thailand Korea Philippines Australia India 79% %69 93% %08 Capital Market Performance Market Capitalization to GDP Ratio in Asia 119% 88% ■2010 ■ 2011 ■ 2012 "Capital market penetration in Indonesia Is relatively low in Asia ...' " 65% 55% 100% 73% %09 Japan Indonesia China 61% 50% 45% 48% 55% 37% 36%#20Regulatory Developments The newly establishment Financial Services Authority (Otoritas Jasa Keuangan/OJK) started their operation by supervising non-bank companies in 2013 and banking sector in 2014 2012 was a strategic year for the Capital Market Infrastructure Development Team (TPIPM) that was successful in establishing, completing & operating core infra-structure projects (started in 2010) KSEI coordinated the implementation of Single Investor Identity (SID) and Investor Fund Account (RDN) to enhance protection and improve disclosure through Akses facility KPEI coordinated the establishment of STP (Straight Though Processing) and Continuous Net Settlement (CNS) to omit manual intervention, enhance security & processing speed. BEI coordinated the establishment of Data Warehouse-Business Intelligent (DW) by integrating CM networks to enhance surveillance, trading and reporting system. Exchange Members (EM) started to operate their new working capital (MKBD) formula to improve risk management and to up-grade its integrated FO-BO system. APEI 20 20#21Regulatory Developments The incorporation of PT P3IEI, a company especially established to manage securities investor protection funds and to enhance investors protection as well as capital market integrity & professionalism. OJK issued a regulation on a new reporting requirement (ARIA) for fund managers, related to their contractual and non-contractual products to improve disclosure information. The establishment of PT Indonesian Capital Market Electronic Library (ICAMEL) to boost capital market awareness and education to public investors New regulation for issuers on the establishment of Audit Committee to be in line with the recommendation from the Report on Observance of Standards and Codes (ROSCO - CG) To develop sharia IPO market, OJK issued a new regulation that allows issuers to use one consolidated prospectus for conventional and sharia instruments to improve efficiency. KY Anti-Money Laundering enhancement regulations APEI 21#22Prospect for Indonesia Securities Industry & Challenges ☐ ☐ Global economy expected to record lower growth of 3.0% in 2013, the Euro area continued experiencing prolonged debt crisis, meanwhile the US economy was showing some improvements, but remained fragile Bank Indonesia surprised the market on 12th of Sep 13 by increasing benchmark BI rate by 25 bps to 7.25% after increasing it by 50% to 7.0% (29th of Aug), by 50 bps to 6.50% (11th of Jul), as it stepped up its battle to combat inflation, exchange rates and outflows. The increase was the third since June 2013 whereby Bl increased its rate by 25 bps after keeping it at low at 5.75% since February 2012 Positive economic outlooks: The Indonesia economic growth is expected to reach 5.5%-5.9% (revised from 5.8%-6.2%) in 2013 and to 5.8% -6.2% (from 6.0%-6.4%) in 2014 amid to the less vibrant global economic growth of 3.5%. Inflation in 2012 is manageable (targeted at 4.5%) and interest rate is stable. Estimated strong net profit growth while global economic upset by crisis of the Euro Zone OJK issued their first regulation on consumer protection that focus on client asset protection will continue to strengthen the confidence of the investors. ■ Implementation of bureaucracy reform at Regulatory function system and supervision (OJK/ Financial Services Authority) that is integrated in overall activity of financial services sector The OJK is primarily responsible for supervising and regulating financial and banking industries: ☐ Financial services activities in banking sector Financial services activities in capital market sector Financial services activities in insurance, pension funds, financing institutions, and other financial services institutions APEI 22#23Prospect for Indonesia Securities Industry & Challenges ☐ Growing volume transactions followed by increasing domestic investor participation ■ Strict market supervisory and broker internal control employed, paired with system enhancement to increase efficiency in the operation area, enforcing more robust operation for brokers ■ The implementation of online trading and DMA facilities is expected to increase trading value and fasten the growth of investors significantly ■ The challenges for securities industry are:] ■ The development of capital market derivatives products ■ The development of retail market (currently is only 300,000 accounts or 0.125% of total Indonesia population) ■ To increase number of listed companies ■ The challenges for OJK are : Supervision of future and commodities market (which is under Trade Ministry) Supervision of cooperatives for the ability to take deposit (which is under Cooperatives and SME's Ministry) ■Fee and charges to industry ■Financial literacy APEI 23