Analysts caution that Indonesia's short-selling revival could spark market abuse
The Indonesia Stock Exchange is re-introducing short selling to boost liquidity, but analysts warn weak enforcement could enable price manipulation and threaten the economy.
In an effort to improve trading depth, the Indonesia Stock Exchange is cautiously bringing back short selling of stocks. Analysts, however, stress that Indonesia’s market has been prone to manipulation, a risk underscored by MSCI’s recent comments. Teguh Hidayat, a director at Avere Investama, said the legal framework to prevent abuse is in place but not consistently enforced.
He warned that without strict oversight, sophisticated traders could exploit short positions, creating artificial price drops and possibly leading to a market collapse. Such a crash could have broader repercussions for the national economy. The debate highlights the tension between enhancing market liquidity and safeguarding against systemic risk.
Why it matters
Weak enforcement of short-selling rules could destabilize Indonesia's stock market and impact the wider economy.
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