Indonesia’s equity market is facing increasing scrutiny amid concerns over unusually high stock valuations and limited liquidity in some of its largest publicly traded companies. Several Indonesian firms, many controlled by prominent tycoon-led conglomerates, are trading at price-to-earnings (P/E) multiples significantly above typical norms, prompting questions about the credibility and transparency of the market.

Dian Swastatika Sentosa, Indonesia’s third-largest company and a predominantly coal mining enterprise, exemplifies this trend. The firm’s shares are valued at roughly 135 times earnings, a level that far exceeds multiples seen in high-growth global technology stocks, such as Nvidia, whose P/E multiple stands near 38. Dian Swastatika Sentosa is largely controlled by the Widjaja family through the Sinar Mas conglomerate and has a free float of 20 percent.

Analysis of the top 25 listed companies in Indonesia reveals that eight have P/E multiples exceeding 100. Many of these firms are closely held, with substantial share ownership concentrated in the hands of founders or controlling families, leaving only a fraction of shares available for public trading. This limited free float has drawn warnings from MSCI, a prominent global index provider, which in January flagged Indonesia for potential downgrade from an “emerging” to a “frontier” market due to concerns over opaque ownership, possible coordinated trading, and restricted liquidity.

Among the most volatile and high-profile cases is Barito Renewables, Indonesia’s second-largest listed company, with a market capitalization of approximately $45 billion and an extraordinary P/E ratio of 358. Controlled by Pragiojo Pangestu, Indonesia’s wealthiest individual, Barito Renewables has a public float of just 12.6 percent. The company’s stock price surged by nearly 679 percent following its 2023 debut. Barito Renewables attributes the share price fluctuations to normal market mechanisms and asserts its commitment to regulatory compliance and corporate governance.

Other companies under scrutiny include Moratel, a telecommunications firm also under the Sinar Mas umbrella, which reported a P/E multiple of 247 and a free float of 33.8 percent. Notably, its P/E ratio exceeded 1,000 at the end of 2023 before market adjustments following MSCI’s cautionary statements. Property developer Pantai Indah Kapuk Dua, with a P/E of 131, cites accounting methods affecting its reported earnings to explain price movements.

Market participants and analysts acknowledge that while high valuations and small free floats do not inherently signify market manipulation, there is widespread concern about the practice known locally as saham gorengan, or “deep-fried stocks.” This term describes shares that experience artificial trading activity and price volatility, potentially driven by related-party transactions or nominee shareholders aimed at generating misleading liquidity.

Indonesia’s Financial Services Authority (OJK) has launched investigations into potential market misconduct, indicating that the scope extends beyond the typical saham gorengan phenomenon to encompass broader capital market rule violations. In response to regulatory concerns, Indonesia’s stock exchange has publicly named companies with substantial shareholder concentration and increased the minimum free-float requirement to 15 percent, granting listed firms up to three years to comply.

Some international investors remain cautious. Global fund managers typically avoid stocks with low liquidity and significant insider control, though this is a challenge for index investors exposed to broad market baskets. Critics argue that the dominance of a few family-controlled conglomerates undermines minority shareholder rights and deters foreign investment.

Overall, Indonesia’s equity market faces pressure to enhance transparency, improve liquidity, and strengthen governance as it seeks to maintain its status as a viable destination for international capital.