HM Sampoerna, Aneka Tambang & Hanson Enter Indonesia's LQ45 Index
Three new stocks will enter Indonesia's LQ45 index for the February-July 2016 period. The LQ45 index, compiled by the research and development division of the Indonesia Stock Exchange (IDX), consists of 45 stocks that meet a number of specific criteria. As the stocks listed in the LQ45 are the country's most traded stocks, investors should follow this index. The composition of the LQ45 index is adjusted twice per year (in February and August).
The three new stocks that will be added to the LQ45 index (from February) are Hanson International (MYRX), Hanjaya Mandala Sampoerna (HMSP), and Aneka Tambang (ANTM). As the LQ45 index is limited to 45 stocks traded on the Indonesia Stock Exchange the aforementioned three stocks will replace the following stocks: XL Axiata (EXCL), Indo Tambangraya Megah (ITMG), and Wijaya Karya Beton (WTON).
The criteria that have to be fulfilled by firms in order to be eligible to be included in the LQ45 index are:
• being among the top 60 companies with the highest market capitalization over the past 12 months
• being among the top 60 companies with the highest transaction value over the past 12 months
• having been listed on the Indonesia Stock Exchange for at least three months
• having good financial conditions, future prospects and corporate management
Although liquidity is a key element in the assessment of whether a stock can enter (or exit) the LQ45 index, it does not necessarily mean that those stocks that exit - or fail to enter - the LQ45 index are weak. High liquidity does not necessarily reflect good fundamentals, nor does low liquidity necessarily imply that an asset has weak fundamentals.
In that context, the removal of Wijaya Karya Beton from the LQ45 index is perhaps a wrong decision as we consider this stock to have good fundamental potential over the next year given that this precast concrete manufacturer is set to benefit from Indonesia's push for infrastructure development (especially its involvement in the Jakarta-Bandung high speed railway). However, Wijaya Karya Beton was among the worst-performing stocks in the LQ45 in 2015. Its shares fell more than 36 percent.
The removal of Indo Tambangraya Megah is no surprise given that this coal mining firm has been plagued by weak conditions in the world's coal mining sector. Over 2015 its shares fell more than 60 percent, while trading of its shares has become increasingly low in terms of volume.
Declining trading volume of shares of XL Axiata, one of Indonesia’s leading cellular service providers, was caused by its weak financial performance. Over the past two years it has posted a net loss.
Top Gainers & Losers LQ45 Index in 2015:
| Company | YoY Growth |
Company | YoY Growth |
| Sri Rejeki Isman | +138.65% | Tambang Batubara Bukit Asam | -63.80% |
| AKR Corporindo | +74.15% | Indo Tambangraya Megah | -62.76% |
| Matahari Department Store | +17.33% | Vale Indonesia | -54.90% |
| Sawit Sumbermas Sarana | +17.12% | Perusahaan Gas Negara | -54.25% |
| Waskita Karya | +16.55% | Adaro Energy | -50.48% |
| Unilever Indonesia | +15.55% | Matahari Putra Prima | -40.16% |
| Telekomunikasi Indonesia | +8.95% | Tower Bersama Infrastructure | -39.43% |
| Summarecon Agung | +8.55% | Alam Sutera Realty | -38.75% |
| Pembangunan Perumahan | +8.39% | Wijaya Karya Beton | -36.54% |
| Bank Tabungan Negara | +7.47% | Astra Agro Lestari | -34.64% |
Source: Indonesia Stock Exchange
Meanwhile, Aneka Tambang was added to the LQ45 as this company was asked by the Indonesian government to purchase a 10.64 percent stake in Freeport Indonesia. The latter, subsidiary of US-based natural resources company Freeport McMoRan Copper & Gold Inc, needs to divest this stake to comply with the new mining law. Speculation about the possible purchase of the stake has led to higher trading liquidity of Aneka Tambang's shares.
HM Sampoerna, Indonesia's largest tobacco company, saw its liquidity improve after increasing the portion of its floating shares on the Indonesia Stock Exchange through a rights issue in late 2015.
Lastly, Hanson International's higher liquidity is not regarded being caused by good fundamentals but is only a temporary phenomenon. William Surya Wijaya, analyst at Indosurya Securities, said the company - similar to the tobacco and mining sectors - still has to face major challenges. Hanson International is an investment company that is primarily focused on the property industry in the Greater Jakarta area.