The Indonesian exchange’s watchlist for volatile and troubled companies is likely to accelerate an exodus of foreign capital from Southeast Asia’s largest equity market, according to Bloomberg Intelligence.

An inclusion on the Watchlist Board may “deter foreign investors due to less transparent and market-driven transactions,” analyst Sufianti wrote in a report on Wednesday. It would also “weigh on the broader market’s return if the negative knee-jerk reactions impact stocks with significant weight.”

Global funds had offloaded more than 600 billion rupiah (US$37 million or RM172.7 million) worth of shares in PT Barito Renewables Energy - Indonesia’s biggest company by market capitalisation - during the three weeks it was placed on the board in May, she said. PT GoTo Gojek Tokopedia’s share price drop to 50 rupiah raises concerns that it could encounter a similar fate, she said.

The Indonesia Stock Exchange’s list - meant to protect investors by limiting transactions on the companies that are on it - has engendered more volatility in stocks after they were included to the watchlist. That adds to the risks for international investors who are already contending with the incoming government’s plans to increase spending that would push the debt load to a two-decade high.

A placement of GoTo on the board would weigh on the Jakarta Composite Index, which is down about 0.8% this year. The stock makes up 1.6% weighting in the benchmark.

For comparison, Barito Renewables Energy’s more than 5% weight in the index had contributed roughly 15% to the JCI’s 3.6% loss during the watchlist inclusion period, Sufianti said.

The Indonesia Stock Exchange introduced the board in June 2023 to improve investor protection and facilitate an efficient market. A stock can be added to the board if it meets one or more of the criteria, including no revenue growth, thin liquidity and unusual price activity.

More than 150 companies have been added to the watchlist so far this year, and the share price for two-thirds of those with trading activities dropped following their inclusion.

“Out of the 38 stocks that have successfully been removed from the special listing board, only 16 had gains,” Sufianti said.

  - Bloomberg