Michael Steven, President-Director, Kresna Securities: Interview

Interview: Michael Steven

How would you describe the regulatory environment in Indonesia’s capital markets sector, and what needs to improve?

MICHAEL STEVEN: The capital markets sector in Indonesia is growing, and therefore some aspects of the regulatory environment need to improve. We need to speed up administrative procedures, and we need regulatory certainty in order to boost investor confidence in our market. The Financial Services Authority (OJK) is becoming a big institution, and market players hope that it will be able to deliver a robust and streamlined improvement in each process. OJK should certainly keep an eye on its efficiency in order to keep up with sector development.

Companies in the capital markets sector would also like for the regulator to increase the level of communication with them, so that they can gain a real understanding of current market trends, concerns and expectations, which would allow them to anticipate issues and potential complications. Only by having close and continuous communication with private sector players will the regulator be able to improve the sector. We need to ensure that the communication flow remains open at all times, not just in times of crisis, so that OJK policies will be better adapted to the real market situation. We would thus be in a better position to follow them.

Which investment areas hold the greatest promise for returns for investors?

STEVEN: Infrastructure is a big area for investors. The government has recently doubled its investments in infrastructure development for the next four years, including roads, railways and power plants, and it is actively seeking the participation of the private sector to help in this matter. Property is another area that will bring interesting returns to investors. Additionally, fast-moving consumer goods, and consumer health care in particular, are other areas that are experiencing substantial growth in the country.

Generally speaking, Indonesia is a very exciting investment destination. Its greatest asset is its population, which is the fourth largest in the world, with the majority being of working age. The question at this point is whether this productive and young population will be able to develop its skills properly to find the jobs needed for the economy to grow at 7% or 8%. This will be a challenge for the country.

How might the ASEAN Economic Community (AEC) affect Indonesia’s capital markets sector?

STEVEN: Indonesia is the largest economy and most populous nation in the ASEAN block. It ranks as the world’s 15th-largest economy today and is expected to jump to number four or five by 2030. As a local capital markets player, Kresna Securities is very bullish on this sector moving forward. Indonesia’s middle class will continue to grow, and as its financial literacy increases, we will see a growing need for more sophisticated and developed investment instruments that are also adapted to the local market. In the short term, we expect the capital markets sector to develop in this sense as a direct result of integration through the AEC. More companies will open businesses here, and we will see more financial products available to the wider population.

As an indirect consequence of AEC integration, Indonesia might experience a decrease in labour productivity relative to the costs, arising from the free movement of labour across the economic bloc. The cost of labour is still an advantage for Indonesia in the eyes of investors, as inexpensive labour attracts long-term investments into the manufacturing and industrial sectors. However, this could change if the government does not control increases in the minimum wage. While such increases are considered a positive trend objectively speaking, we need to make sure that productivity also increases. Otherwise, Indonesia will lose its competitiveness against neighbouring countries like Malaysia and Thailand.