
Stock indices are important to support the development of the capital market as a benchmark for the performance of investment products. According to the Indonesia Stock Exchange (IDX), the stock index itself is a statistical measure that reflects the overall price movement of a group of stocks selected based on certain criteria and methodology and evaluated regularly.
Being the main reference in building an investment portfolio, investors can utilize stock indices to explore the potential of various segments of issuers. They must be familiar with the term IDX Composite and other indices. This stock market jargon is often highlighted by experts and analysts because it has many benefits.
Indonesia Stock Exchange (IDX) has recorded 46 stock market index which are classified to four sections:
Headline: Calculating the performance of share prices which are the main reference for the capital market.
Sector: Calculating the performance of share prices in a specific industrial sector.
Thematic: Calculating the performance of share prices under a specific theme, such as religion or ESG.
Factor: Calculating the performance of share prices which that takes into account investment decision factors such as size, valuation, momentum, volatility, fundamentals and dividends.
New to Investing? Take Note of These Following Indices!
COMPOSITE / JCI: Measuring the performance of all share prices which are recorded in the IDX Main Board and BEI Development Board. This index is generally worth noting by all investors, traders, market analysts, portfolio managers, governments, and financial media.
LQ45: Measuring the performance of 45 stocks that have high liquidity and large market capitalization and are supported by good company fundamentals. Keep an eye on these indices if you want to invest for the long term.
PEFINDO25: Measuring the performance of 25 small to medium companies stocks with good financial performance and high liquidity transactions. The index was launched in cooperation with PT Pemeringkat Efek Indonesia (PEFINDO).
IDX High Dividend 20: Measuring the performance of 20 stocks that gives out cash dividend for the last three years with a high dividend yield.
SRI-KEHATI: Measuring the performance of stock prices from 25 companies that supports sustainable businesses which hold environment, social, and good company governance in high regards (Sustainable and Responsible Investment or SRI). The index was launched in collaboration with the Indonesian Biodiversity Foundation (Yayasan KEHATI).
Jakarta Islamic Index (JII): Measuring the performance of 30 syariah stocks with excellent financial performance and high liquidity transactions.
IDX Sector: Measuring the performance of all stock in IDX Main Board and Development Board which are in these sectors:
Energy (IDXENERGY)
Basic materials (IDXBASIC)
Industrial (IDXINDUST)
Non-cyclical consumer goods (IDXNONCYC)
Cyclical consumer goods (IDXCYCLIC)
Health (IDXHEALTH)
Finance (IDXFINANCE)
Property and real estate (IDXPROPERT)
Technology (IDXTECHNO)
Infrastructure (IDXINFRA)
Transportation and logistics (IDXTRANS)
Benefits of Stock Indices According to IDX Stock Index Handbook
Measuring market sentiment: Changes in value reflected in an index can be used as an indicator that reflects the collective opinion of all market participants.
Made into passive investment products such as Index Mutual Funds, Index Exchange-Traded Funds (ETFs) and other derivative products: An investment in an Index Mutual Fund or ETFs that references a particular index ensures that the portfolio managed by the fund manager is in line with that index.
Benchmark for active portfolios: The selection of the right index as a benchmark largely determines the risk and expected fund manager performance of an active portfolio.
Proxies for measuring and modeling returns, systematic risk, and risk-adjusted performance: Composite indices such as the JCI are commonly used as proxies for market portfolios as well as calculating the systematic risk and risk-adjusted performance of a portfolio.
Proxies for asset class in asset allocation: Stock indices can also be used as a proxy for asset allocation as they contain the risk and return profile of a group of stocks.
Ultimately, stock indices help investors make informed decisions when buying or selling their stocks.
Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).
Comments