Indonesia exchange imposes 10% drop limit on shares

A trader stands in front of an electronic board at the Indonesia Stock Exchange (IDX) in Jakarta on Aug 24, 2015.
A trader stands in front of an electronic board at the Indonesia Stock Exchange (IDX) in Jakarta on Aug 24, 2015. PHOTO: REUTERS

JAKARTA (BLOOMBERG) - The Indonesia Stock Exchange narrowed the daily limit on share-price losses to 10 per cent in a bid to stem volatility after the benchmark index fell to a 20-month low.

Indonesia becomes the third Asian nation to follow China's lead in imposing extraordinary measures to sandbag share markets amid a global rout triggered by the surprise devaluation of the yuan. Taiwan on Sunday issued a limited ban on short-selling after its benchmark index entered a bear market last week, while South Korean financial authorities were ordered to implement measures when necessary to shore up share prices.

The bourse cut the cap from between 20 per cent to 35 per cent starting Tuesday (Aug 25), the same day that state-owned companies collectively plan to spend at least 10 trillion (S$998 million) on share buybacks.

The benchmark Jakarta Composite Index rallied the most since March 2014 on Tuesday. The index gained 2.7 per cent to 4,275.58 at 10 am local time, rebounding from a five-day drop to the lowest close since December 2013.

The Jakarta Composite entered a bear market on Friday after falling more than 20 per cent from an April 7 peak as capital outflows accelerated amid a weakening economy.

"This is intended to prevent panic selling," Andy Ferdinand, head of research at PT Batavia Prosperindo Sekuritas, said from Jakarta. "They only implement this kind of rule during extreme situations."

For stocks priced between 50 rupiah and 200 rupiah, the limit was revised from 35 per cent, while caps for shares priced at more than 200 rupiah were narrowed from between 20 per cent to 25 percent. Both Taiwan and South Korea announced they would widen trading limits this year as regional bourses ease rules to attract investors.