Generation Z in the Capital Market

KOMPAS/RADITYA HELABUMI

The movement of the Composite Stock Price Index (JCI) at the Indonesia Stock Exchange Building, Jakarta, Monday (21/2/2022).

In addition to the surge in the number of investors, the pandemic investment trends have also been marked by the entry of new investors, particularly by Millennials (also known as Generation Y) and Generation Z, who have begun to dominate trading on the capital market.

According to data from the Indonesian Central Securities Depository (KSEI) and the Indonesia Stock Exchange (IDX), by the end of the first quarter of 2022, the number of capital market investors reached a total of 8.3 million people, up 12.13 percent from 7.29 million people at the end of Dec. 2021. From Dec. 2020 to Dec. 2021, the number of investors jumped 91.34 percent from 3.81 million to 7.29 million people.

Novice investors from among Gen Y (born between 1981 and 1995) and Gen Z (born between 1996 and 2012) have begun to dominate trading, accounting for 80 percent of the total population in the capital market. Such a trend is not only seen in Indonesia with its young demographic structure, but also in the world. Gen Y and Gen Z have become a major force that continues to grow, pushing the market to new frontiers. Like it or not, the financial sector must adapt. Otherwise, it will be left behind.

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The surge in the number of investors indicates an improvement in the public awareness about investing in the capital market. Contrary to the stigma younger generations face, who are often stereotyped as spenders, studies in several countries show that almost half of Gen Y and Gen Z invest money with the primary motivation to be financially independent. The stock market is an option.

Inevitably, the characteristics of Gen Y and Gen Z, according to Jean Case, CEO of For What It's Worth, are that they have more economic power, earn more, save more, invest earlier and at a higher rate than previous generations.

DOKUMENTASI GOTO

(left to right): GoTo Director Kevin Aluwi, GoTo Group President Patrick Chao, GoTo President Director Andre Soelistyo, and GoTo Commissioner William Tanuwijaya during the official ceremony to become a public company on the Indonesia Stock Exchange, Monday (11/4/2022).

In Indonesia, the surge in the number of investors has led to the impressive performance of the stock exchange, as reflected in the increase in the Jakarta Composite Index (JC) and market capitalization. Throughout 2021, trade value, transaction frequency and transaction volume increased by 45.7, 91.3 and 81 percent, respectively. The number of companies listed on the stock exchange has also increased sharply.

We see such an investment trend as an exciting phenomenon. The increase in investors in the stock exchange, mutual funds and bond markets are an illustration of increasing financial inclusion, deepening or expanding of the investor base, which also makes the funding base for development and business financing in the country stronger.

In addition to increasing awareness of investing and the financial power of Gen Y and Gen Z, the pandemic situation, low interest rates (which make saving in banks no longer attractive), the emergence of online brokerage platforms and commission-free trading -- which makes investing on exchanges more accessible than ever --- have also contributed to a surge in the number of investors.

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> The Response of Generation X and Y

However, the characteristics of novice retail investors who are generally emotional, lack understanding and just follow trends, can pose risks to the stock market and the stability of the financial sector. The most-traded stocks are also no longer large-cap top-tier stocks, but small-cap stocks, whose price increase is often not caused by solid fundamentals.

The demographic shift in the stock exchange has also resulted in a change in the investment culture and the game map, which can create risks for investors themselves or the stock exchange. Improving literacy, strengthening regulations and protecting investors are important to eliminate investment risks.

This article was translated by Hendarsyah Tarmizi.