JAKARTA - Unexplained gains in Indonesian stocks are fuelling calls for tighter regulation in South-east Asia’s biggest equity market.

Known as “deep-fried” shares among local traders, they often have concentrated ownership, low trading volume, scant analyst coverage and elevated valuations relative to peers.

In the past three years, at least 83 Indonesian companies have swung by 1,000 per cent or more from peak to trough, according to data compiled by Bloomberg.

That is about 10 per cent of total stocks listed, a higher proportion than in neighbouring Thailand, Malaysia, Singapore, Vietnam and the Philippines.

While wild stock swings for illiquid shares are nothing new in emerging markets, the moves have become so extreme in Indonesia that regulators on Monday introduced a new watch list board to quickly spot what they perceive as troubled companies as a way to protect investors.

The list will include firms with no revenue growth, low share prices, thin liquidity and undergoing debt restructuring, among other factors.

Some traders are pushing for the authorities to do even more, while Indonesian President Joko Widodo has urged regulators to boost supervision of possible market manipulation.

At stake is investor confidence in a nearly US$640 billion (S$855 billion) stock market that has become so illiquid it has forced some companies to resort to higher-cost bank loans as a way to raise capital.

The International Monetary Fund said in a report in 2022 that Indonesia’s “shallow” financial markets are a longstanding challenge for growth.

The ratio of the nation’s stock market cap to gross domestic product is also the lowest among South-east Asian peers.

“We need the regulators to step in,” said Mr Jerry Goh, an investment manager covering Asian equities at abrdn Asia.

Not all shares that are volatile are considered deep-fried stocks, though traders have expressed confusion over the growing levels of big swings.

The results of the gains have minted or propelled the wealth of a handful of ultra wealthy tycoons.

Mr Low Tuck Kwong, a billionaire who controls Bayan Resources, became one of Asia’s richest men after shares shot up more than 220 per cent over six weeks at the end of 2022.

A nearly 14,000 per cent surge in shares of DCI Indonesia in the five months after debuting in early 2021 put majority owners Otto Toto Sugiri and Marina Budiman into billionaire status.

The Indonesia Stock Exchange has already imposed intraday trading limits and automatic rejection of certain bids and offers if they veer too far away from the asking price.

Meanwhile, the financial services authority uses monitoring tools like trading halts or suspensions to cool any unusual market activity, according to capital market supervisor Inarno Djajadi.

Still, neither the exchange nor the regulator have indicated how they plan to filter and investigate the anomalies among the 800-odd stocks in the country.

Some investors have developed a nickname for stocks that see eye-popping gains after a rush of buying and selling that later dies off.

Chinese call it chao gu, or “stir-frying stocks” – a reference to rapid speculation that keeps shares “hot”.

Indonesians have borrowed the concept, referring to such companies as saham gorengan, or “deep-fried stocks”.

One way to describe this cohort is akin to how food of suspect quality tastes better fried.

The term became synonymous with the spectacular collapse of state insurance giant Asuransi Jiwasraya in 2020.

The company needed a government bailout after investment into risky stocks, a violation of management guidelines that resulted in a gaping US$2 billion financial loss.

When shares of coal miner Bayan Resources surged to a record high at the end of December, Mr Low purchased more of the stock, according to an exchange filing.

Prior to the surge, Mr Low’s net worth was US$5 billion, about one-fifth of his total today.

Bayan is trading at 16 times price-to-earnings, higher than all of its regional peers.

Its free float sits at 2.5 per cent, lower than the exchange’s threshold of 7.5 per cent.

Petrindo Jaya Kreasi, which is involved in coal and gold mining, gained nearly 370 per cent in the first seven weeks after its debut in early March.

That was a windfall for its main shareholder and business magnate Prajogo Pangestu.

A week after the company debuted, the stock exchange flagged unusual activity in trading of its shares.

The company has no analyst coverage, according to Bloomberg data, and its price-to-book ratio based on the latest quarterly results is at 6.6 times, more than threefold of the benchmark JCI Index.

Indonesia’s bourse has worked to increase transparency of its markets, including creating special lists to monitor unusual activity.

It also actively talks to companies about significant swings and tries to investigate anomalies.

Still, progress appears to be slow and results minimal, according to Mr John Rachmat, senior adviser at Singapore-based Pinnacle Investment.

“After so many decades, it’s still a dead end,” he said of regulators’ efforts to curb volatility.

Wild market swings gained notoriety in the United States in 2022 after a number of microcap stock debuts gave way into dizzying rallies.

Those include Chinese garment manufacturer Addentax Group Corp, which soared 13,000 per cent on its trading debut in 2022, while Hong Kong financial group AMTD Digital surged some 32,000 per cent.

China and Hong Kong have at times been known for dramatic price volatilities, too.

Over the past three years, some 14 per cent of Hong Kong shares have swung more than 1,000 per cent.

But there is potentially more at stake for Indonesia, a market that is still a fraction of China’s and the US’ and is trying to attract more investors to help boost its economy.

“Low liquidity can be both a boon and a bane, and investors don’t want to be caught holding a low liquid, low quality stock,” abrdn’s Mr Goh said. BLOOMBERG