“The performance evaluation of the state-owned enterprise’s stocks in Indonesia”

State-owned enterprises (SOEs) play a strategic role in the Indonesian economy. In Indonesia, SOEs have contributed around 16.41% for the Indonesian state budget. Many Indonesian state-owned enterprises (SOEs) have listed their stocks on the Indonesia Stock Exchange. However, the study on the performance of SOEs’ stocks is still relatively limited and tends to use indicators such as Sharpe Index, Treynor Ratio or Jensen Index. In addition to using indicators such as Sharpe Index, Treynor Ratio or Jensen Index, this study examines the performance of SOEs’ stocks using Adjusted Sharpe Index, Adjusted Jensen Index and Sortino Ratio that can measure the downside risk of those stocks. The objective of this study is to analyze the performance of the SOEs’ stocks in Indonesia. The sample in this research were 19 SOEs’ stocks listed on Indonesia Stock Exchange during the period from January 2013 until April 2019. The result of this research indicated that INAF (PT Indo Farma) stocks had the best performance when measured by using all measurement methods. The performing stocks came from the construction sector and the pharmaceutical sector. Therefore, investors are suggested to give more attention to SOEs from the pharmaceutical sector and the construction sector.


INTRODUCTION
State-owned enterprises (SOEs) play a strategic role in the Indonesian economy. According to Directorate General of Budget (2017), the profit from Indonesian SOEs has contributed around 16.41% to the Indonesian state budget. SOEs can also be an income distribution tool for Indonesian people (Sugiharto, 2007). This income distribution can be realized if SOEs become public companies and their stocks are owned by Indonesian people as investors so that the Indonesian people as investors can enjoy the dividend of profits in the form of dividends or in the form of capital gains.
There are approximately 20 state-owned enterprises listed on the Indonesia Stock Exchange hold by the government and public company until April 2019. Associated with stocks of SOEs, various studies have been conducted on the performance of stocks of these SOEs. Sari (2015) conducted a special study on risk and return on SOEs banking sector. Sari (2015) linked the banking finance variables such as Return on Asset, Return on Equity, Price to Book Value, and Economic Value Added to the stock of banking sector of SOEs from 2005 till 2014 and found that only Price to Book Value had a significant influence on stock returns. While in an international context, there are several studies examining the performance of SOEs such as Radygin, Simachev, and Entov (2015), Wang, Jin, and Yang (2016).
In addition to the studies above, there are several studies that specifically examine the performance of state-owned stocks using performance evaluation approaches in the stock market. Some of these studies are researches conducted by Dewi (2011) and Al-Falah and Alayk (2008). Dewi (2011) reviewed the performance of state-owned stocks using common measurements such as Sharpe Ratio introduced by Sharpe (1966), Jensen Index introduced by Jensen (1967) and Treynor Ratio introduced by Treynor (1965), while Al-Falah and Alayk (2008) also use the same measurements including Sharpe Ratio, Jensen Index and another measurement was Appraisal Ratio.
Although it was widely accepted and widely used by practitioners and academics (Bednarek, Patel, & Ramezani, 2014), and even becoming the industry standard for investment (Kidd, 2011a(Kidd, , 2011b, performance measurement such as Sharpe Ratio and Jensen Index are not criticism-free. Such criticism, for example, for Sharpe Index is seen to be problematic due to the difference of time horizon (Cvitanic, Lazrak, & Wang, 2007). Further, Kidd (2011b) argued that Sharpe Index had a weakness, because it measured risk by using one dimension that was only by using variance. Kidd (2011b) and Robiyanto (2018b) also pointed to another Sharpe Index's weakness, which used the assumption of a normal return distribution. This assumption is clearly difficult to meet in real conditions, therefore, Jobson and Korkie (1981) developed the Adjusted Sharpe Index (ASI) to overcome the biases of Sharpe Index.
In contrast to Sharpe (1966) who used variance to represent a risk, Treynor (1965) created an approach called Treynor Ratio using market risk. Beta shares were used to represent market risk or systematic risk. In addition to the Sharpe Index and Treynor Ratio, the popular portfolio performance measurement tool is Jensen Alpha created by Jensen (1967). However, Jensen Alpha also has a weakness, where it is less appropriate to use if the level of stock market performance occurred is different. Therefore, there is a need for adjustment by sharing it with systematic risk. This adjustment is called the Adjusted Jensen Alpha Index Zulkafli, Ahmad, & M, 2017). In addition to those ratios/indices, there is another measurement method called Sortino Ratio (SoM). This SoM describes the difference in portfolio return when it is compared to downside risks. Zulkafli et al. (2017) argue that the risk of this price reduction in the form of portfolio risk calculation by considering the probability of return was smaller than returns that could be accepted by investors.
Previous studies tend to focus on Sharpe Index, Jensen Index, and Treynor Ratio only. Unlike previous studies which focused on the Sharpe Index, Jensen Index, and Treynor Ratio to measure the performance of the SOEs' stocks, this study will also use the Adjusted Sharpe Index and Adjusted Jensen Index for non-biased measurements. Also, Sortino Ratio is also used in this study considering the fact that researches on the performance of the SOEs have never used Sortino Ratio, although it can indicate a downside risk (La Monaca, Assereto, & Byrne, 2018). This study aims to determine the SOEs' stocks that have the best performance based on the measurement methods used in this study. The benefit of this study is to assist investors interested in investing in the SOEs' stocks in Indonesia. This is important because investors tend to worry about the future of their stock investment (Preqin, 2014).

State-owned enterprises
Reviewing the role of the state as a company owner can be a starting point for the selection of economic policy (Abramov, Radygin, & Chernova, 2017). Scholars have long been involved in the discussion about the size of the public sector allowed in the economy. Most studies on this topic generally deal with the privatization of SOEs', as it is also common in Indonesia. Associated with government ownership on SOEs, governments can do so through direct and indirect ownership. Direct own-ership implies that state-owned stocks are managed by authorized state institutions, while indirect ownership implies that the government owns shares, but not through authorized state institutions or through other organizations (Abramov et al., 2017;Radygin et al., 2015). SOEs have an important role in national economies. A new round of SOEs reformation began to occur when privatization was done to implement mixed state ownership as what had been implemented in China (Wang et al., 2016) and Indonesia (Wicaksono, 2008 Rollinger and Hoffman (2013), "In many ways, the Sortino ratio is a better choice, especially when measuring and comparing the performance of managers whose programs exhibit skew in their return distributions. The Sortino ratio is a modification of the Sharpe ratio but uses downside deviation rather than standard deviation as the measure of risk -i.e. only those returns falling below a user-specified target".
Other modifications to the measurement indicator are also performed on Jensen Alpha. Zulkafli et al. (2017) suggest that Jensen Alpha cannot be used to measure performance at different levels of performance index with different performance, so it needs to be adjusted with systematic risk factors. This adjustment is often called Adjusted Jensen Alpha Index (AJI).

Data
The data used in this research were the monthly closing price of SOEs' stocks that were used as the sample of this study, monthly closing of Jakarta Composite Index (JCI) data to calculate the market return in order to calculate stocks' beta, and  The stocks that were used as the sample of this study can be seen in Table 1.

Population and sample
To calculate stock's beta, this study uses the Jakarta Composite Index (JCI) as a proxy of the market, so the market return calculated by using the following formula: .

Jensen alpha AJI
Stock beta =

Beta, standard deviation, and average monthly return
The beta value, standard deviation and average monthly return of SOE stocks in this study can be seen in Table 2.

SOEs' stocks performance evaluation
In  were seven SOEs' stocks generating returns below the risk-free interest rate, such as PGAS, BMRI, ANTM, KRAS, SMGR, JSMR, and GIAA. SOEs' stocks in the mining sector such as ANTM and infrastructure such as PGAS and KRAS stocks generate returns below the risk-free interest rate. This could happen because, during the research period, the price of mining commodities in the world market experienced a downturn, which resulted in poor performance of these SOEs' stocks. The same thing was also experienced by PGAS stock whose products followed prices in world markets. This finding supports Robiyanto (2018b) who also finds that mining sector stocks perform the worst in the IDX during 2011-2017, and Wicaksono (2008) who found that PGAS performance is not good. Unfortunately, this finding is not consistent with Rini et al. (2013), who found that those stocks have been performing well in 2011 when the commodity price was still good.
There was one stock of SOEs in the banking sector generating a return below the risk-free interest rate, which was BMRI. This was different from other state-owned banks that could generate returns above the risk-free rate. During the research period, BMRI stock showed less expected performance due to the impact on government policy to lower lending rates. Unlike other state-owned banks that did not focus on the corporate sector in lending, BMRI was more likely to channel credit to large corporations.
SMGR and JSMR stocks also yielded a return below the risk-free interest rate, because, during the study period, these stocks were declined due to their performance that did not meet the expectations of investors. SOEs' stock that earned return below the risk-free interest rate and produces the worst performance was PGAS stock. As an infrastructure company that also produces natural gas, PGAS was heavily dependent on natural gas market prices and held a very high burden of depreciation that ultimately affected its performance.
There were 12 SOEs' stocks generating a higher return than the risk-free rate. The segmentation is made by combined Jensen Alpha and Beta, as formulated by Widodo and Robiyanto (2018). Jensen (1967) stated that Alpha < 0 means that the stock returns have not inappropriate for its risk (or, it was too risky with low return); Alpha = 0 means that the stock has produced an adequate return for the risk; Alpha > 0 means that the stock has produced higher return for the assumed risk, while β < 0 means that the stock categorized as aggressive; β = 0 means that the stock categorized as neutral; β > 0 means that the stock categorized as defensive.
There are five stocks in the segment of underperform-defensive; one stock in the segment of underperform-neutral, three stocks in the segment of outperform-defensive; two stocks in the segment of underperform-aggressive; eight stocks in the segment of outperform-aggressive; while none in the segment of neutral-neutral. Overall, nine stocks are categorized as underperforming and ten stocks are categorized as outperform.
The results of mutual funds' segmentation are shown in Table 4. The same finding has high possibility to occur in the period 2019-2024, because the same administration (the Joko Widodo's administration) is continuing to govern Indonesia and will continuing their infrastructure program. Hopefully, this finding will encourage Indonesia investors to invest in the SOEs' stocks, so the SOEs' stocks could deliver the benefit to Indonesian investors.
Stock investors in Indonesia Stock Exchange are advised to invest in stocks of SOEs worth investing by focusing on the best performing state-owned enterprises such as KAEF (PT. Kimia Farma Tbk. (Persero)), INAF (PT. Indofarma Tbk. (Persero)), and WSKT (PT. Waskita Karya Tbk. (Persero)). Based on their risk preferences, investors also could select stock, which is suitable for them. For investors who prefer to stock with low volatility, they can choose a stock, which segmented in the outperform-defensive category. On the other hand, investors who prefer to stock with high volatility, they can choose a stock, which segmented in the outperform-aggressive category.
The Indonesia SOE Ministry can also use the portfolio evaluation techniques used in this study to ranks the performance of Indonesian SOEs' stocks. Also, the Indonesia SOE Ministry must give extra attention for the SOE with low stock performance, because the stock performance also reflects its financial performance. Some financial restructuring even the BOD's member replacement must consider. The best performer stock has high possibility to continuing it performance in the period 2019-2024, because the same administration (the Joko Widodo's administration) is continuing to govern Indonesia and will continuing their infrastructure and social health program. Hopefully, this finding will encourage Indonesia investors to invest in the SOEs' stocks, so the SOEs' stocks could deliver the benefit to Indonesian investors.