Amid a slowdown in global initial public offerings (IPOs) due to geopolitical turbulence and sluggish global economic growth in the first half of this year, Southeast Asia markets, in contrast, are thriving. Deloitte's latest research report shows that the number of IPOs in the Southeast Asian market during this period was 85, an increase of 16% year-on-year, raising $3.3 billion, a 5% increase from last year. This is a stark contrast to the global market, where IPO numbers fell by 5% and revenues plummeted by 36%.
Indonesia has shone in the global capital market in the first half of this year, becoming the Southeast Asian country with the highest number of newly listed companies. Driven by the optimistic prospects of green energy industry investment and rich reserves of battery metals, the Indonesian stock market completed 44 IPOs in the first half of this year, accounting for 70% of the total funds raised in Southeast Asian IPOs. This not only set a new record in Indonesia but also made it one of the top four in the world, behind China, the U.S., and the UAE, surpassing Japan, South Korea, and India.
Local scholars and industry insiders believe the region's capital market was ignited by three significant IPOs in Indonesia, each raising over $500 million, including nickel company PT Trimegah Bangun Persada Tbk, a minerals and electric vehicle battery materials company, and a geothermal power plant operator. Given that the primary business of these three companies is in the mineral energy field, some people question the sustainability of the current boom in Indonesia and the Southeast Asian IPO market.
Teuku Dirgayuza, director of Indonesian investment institution Avere Investama, said that the entry of large mining companies into the capital market would affect other economic sectors in Indonesia. Professionals suggest that what attracts investors isn't merely the country's metal mining industry. Over the past decade, Indonesia's economic output has grown by an average of 4.3% per year. As the world's fourth most populous country, Indonesia has a large young population and a growing middle class, which are crucial for sustainable economic development. Analysts are cautiously optimistic about the region's prospects given the many problems facing the global economy.
Deloitte believes, "Positive growth prospects, a healthy population structure, and strong trade ties with China offer many exciting opportunities for investors to explore and exploit in the region." This is the fundamental reason for the IPO boom in Southeast Asian countries such as Indonesia this year. In addition, over the past year, many investors have exited their local stock markets due to rising interest rates increasing the cost of funds in developed countries.
At the same time, the attractiveness of the Indonesian capital market has increased. Professionals believe that the prosperity of the Indonesian IPO market will continue. In the second half of this year, Indonesia will issue three large-scale IPOs from the bulk commodities and consumer sectors. However, there are also many factors unfavorable to the growth of the Indonesian economy and the future IPO environment, including the Russo-Ukrainian conflict, the U.S. dollar and local currency interest rate hikes, banking crises, inflation, and falling external demand. Additionally, with Indonesia set to hold a general election in February 2024, investors may adopt a wait-and-see attitude before the election.
The International Monetary Fund predicts that Southeast Asia's economic growth will slow from 5.7% in 2022 to 4.6% in 2023. Deloitte said that a series of interest rate hikes by the U.S. and countries in the region have already affected Asian currencies and capital markets and could lead to capital outflows, currency devaluation, and rising debt levels in some countries. How Southeast Asia weathers the storm of economic recovery remains to be seen.
Meanwhile, large-scale nickel mining in Indonesia has also raised some environmental concerns. According to the BBC, the International Energy Agency predicts that Indonesia, as the world's largest nickel producer, will meet two-thirds of global nickel demand. The country has signed agreements worth billions of dollars with international companies investing in processing plants and mines. However, environmentalists warn that mining could have devastating effects on the environment. On the southeastern island of Sulawesi, local fishermen fear that nickel mine waste could eventually end up in the sea if the government doesn't take action.
According to the Wall Street Journal, Chinese companies have opened at least three mineral processing plants in Indonesia in recent years, specifically serving electric vehicles. With the application and promotion of advanced technology, Chinese companies have made the large-scale development of low-grade laterite nickel ore possible. In the exploitation of local nickel mines, Chinese companies have taken the lead.
