Phenomenon in Indonesia stock exchange
Introduction
How does the halving of Book Value in a company balance sheet within a year sounds to you? Pretty bad right? What if this halving of BV is happening in a country stock exchange? Yes exactly, that is what we will discuss in this post.
IHSG - Indonesia Composite Index
Below is a table on the monthly statistics, note the highlighted area.
Download the PDF here. Select the monthly statistics report for Nov'24.
Key highlights:
- In red: Price levels did not move much from Nov'23 to Nov'24.
- PER (Price Earnings Ratio) stable.
- In purple: PBV (Price Book Value) doubled from 1x to 2x.
Point #3 is the phenomenon we are going to discuss as it is unusual if price levels does not move much but PBV ratio jumps from 1x to 2x as the table above suggested ~ implying Book Value has collapsed by half.
Symptoms and indications
Having the market's total Book Value destroyed like that is a major symptom and could indicate an incoming crash in the near/medium term:
Fundamental disconnect between other valuations (PER) and the market's intrinsic value (represented by the Book Value). Such disconnect is unsustainable and typically leads to correction.
Potential hidden problems which are recognized on the balance sheet but not priced in. If companies are showing rapidly declining book values then it is likely the actual value is significantly lower than what's reported (e.g: asset impairment, financial distress).
Looming market correction is on the horizon especially once the market realizes the disconnect and underlying problematic book values.
Other valuation metrics will follow suit. Currently the PER is holding steady, suggesting earnings haven't deteriorated yet. However if the book value destruction is real then it won't be long before earnings starts dropping like flies and so will the market's price levels.
Other piece of the puzzle
Now I found the next puzzle a bit later when digging for additional info:
These two tables are only one month apart from each other (Jan'24 vs Feb'24). Check the yellow and purple rectangles.
Can you see what's wrong? Here let me help you understand:
- Purple column is the PBV, which shows massive increase from Jan'24 to Feb'24.
- However in the yellow column, we can clearly see the Book Value of each sectors and the numbers suggests there are no significant decline at all, on the contrary the numbers looks stable!
Final piece of the puzzle
The last nail on the coffin, I found this official letter about the new version of statistics data, which would come into effect on Feb'24.
So the issue is relatively simple, there's a new version of the statistics data and looks like there were some adjustments to how they calculate the data especially the PBV.
There is no way Book Value of an entire stock exchange to collapse in half within a month period, that would be a market crash on a massive scale!
Conclusion
I know this post ends on an anti-climactic note and I myself felt dissapointed with the conclusion: "so it's all due to data error / calculation adjustment?". However the knowledge outlined here is real, there are disconnections / numbers that seems to detach from reality albeit on rare occassion.
If you ever encountered such situation, make sure to prepare your gunpowder (cold money, excess capital) coz you will need it to hunt and make lots of killing from the stock market!
After all, when everything's collapsing then it's the ideal time to buy cheap assets (that's why it's called The Buyer's market).