GLOBAL FINANCIAL CRISIS: THE BUBBLE EFFECT IN INDONESIA

Abstract

US and Indonesia stock markets are entering record heights without being offset by economic growth
and profitability growth of their traded companies. There are several indicators for the stock market
bubble: (1) Price Ratio (Ear Ratio); (2) Price Ratio / Book (PB Ratio), the latter comparing the
nominal price of one share at a market with the book value (the value of company's assets). The
current PB ratio of the composite stock price index being 3.3 means that for each shares the asset
value of which is 1 IDR, the stock would be worth 3.3 IDR. This is one of the most expensive price in the world today. Based on the above, for Indonesian stock market sharp decline is just a matter of time and waiting. This decline will be much sharper if triggered by the US financial crisis. We can also also see a bubble emerging from increasingly irrational investment attitudes. Currently, in addition to high prices for stocks and bonds, investors have started looking at investment opportunities in digital currencies. This research tries to know the potential of financial crisis and its
effect for the financial market in Indonesia.