Coal’s Growing Role in Indonesia’s Sharia Capital Market
Indonesia has a large Muslim population and an established Islamic capital market designed to provide investment opportunities that comply with sharia principles. One of its key benchmarks is the Indonesia Shariah Stock Index (ISSI), which includes sharia-compliant stocks listed on the Indonesia Stock Exchange.
The coal sector has become particularly important within Indonesia’s energy economy. The global energy crisis following Russia’s invasion of Ukraine increased demand for alternative energy supplies, including coal. Higher international coal demand contributed to stronger export opportunities for Indonesian producers and supported the financial performance of energy companies.
This environment also coincided with rising energy-sector stock prices between 2022 and 2024. However, stock valuations do not depend solely on commodity prices. Inflation and exchange-rate movements can alter production costs, corporate profitability, investor expectations, and the attractiveness of domestic equities.
Against this backdrop, Lestari and Oktafia examined whether inflation, the Indonesian rupiah-to-US-dollar exchange rate, and global coal prices were associated with stock prices of ISSI-indexed coal companies.
How the Research Was Conducted
The researchers used panel data covering 2018–2024 and selected 11 coal companies through purposive sampling. The companies met criteria including continuous inclusion in the Sharia Securities List and the availability of financial statements during the research period.
Instead of using a conventional static regression, the researchers applied a dynamic panel model using the Generalized Method of Moments (GMM). This approach allows current stock prices to be influenced by previous stock prices while also accounting for possible endogeneity and differences among companies.
The analysis included the previous period’s stock price, inflation, the IDR/USD exchange rate, and coal prices. The researchers also conducted diagnostic tests, including the Arellano-Bond serial-correlation test and the Sargan test for instrument validity.
The results indicated no significant second-order serial correlation, with the Arellano-Bond AR(2) probability at 0.6483. The Sargan test produced a probability of 0.585121, supporting the validity of the instruments used in the model.
Previous Stock Prices Influence Current Valuations
One of the study’s findings was a strong relationship between previous and current stock prices.
The lagged stock-price coefficient was 0.344009, with a probability value of 0.0000. In practical terms, higher stock prices in the previous period were associated with higher current stock prices, all else being equal.
The result points to a degree of persistence in investor valuation. Previous market performance can influence expectations about future company performance and therefore contribute to continuing price movements.
For investors, this suggests that historical price movements may contain useful information when assessing sharia-compliant coal equities, although such information should not be considered in isolation from broader economic and commodity conditions.
Inflation Creates Strong Downward Pressure
Inflation showed the strongest negative coefficient among the variables examined.
The estimated coefficient was -1,404.946, with a probability value of 0.0000. The researchers interpret this as evidence that higher inflation is associated with lower stock prices among the coal companies examined.
Higher inflation can increase operating expenses, including labor, transportation, materials, and other business costs. If companies cannot pass these increases on to customers, profit margins may decline. Investors may subsequently lower their expectations for future earnings and company value.
The finding highlights the importance of domestic macroeconomic stability for companies operating in the energy sector, even when international coal prices remain favorable.
A Weaker Rupiah Also Hurts Stock Prices
The IDR/USD exchange rate also had a statistically significant negative relationship with stock prices.
The estimated coefficient was -1.51, with a probability value of 0.0023. In the study's interpretation, a higher exchange rate—meaning more rupiah are required to purchase one US dollar—corresponds to rupiah depreciation and is associated with lower stock valuations.
Currency depreciation can increase financial risks for companies with foreign-currency obligations and may raise the cost of imported equipment and machinery. It can also influence investor perceptions of macroeconomic stability.
For Indonesian coal companies, therefore, exchange-rate developments remain an important factor alongside international commodity prices.
Higher Coal Prices Support Stock Valuations
The strongest positive external factor identified in the study was the coal price.
The coal-price coefficient reached 55.95555, with a probability value of 0.0000. The finding indicates that increases in coal prices were associated with higher stock prices among the ISSI-indexed coal companies in the sample.
Higher coal prices can improve selling prices, revenue expectations, profit margins, and projected cash flows for coal producers. These improvements can strengthen investor confidence and support equity valuations.
The result also demonstrates the close connection between Indonesia’s resource-based companies and global commodity markets.
What the Findings Mean for Investors and Companies
The research has practical implications for several groups.
For corporate managers, the findings suggest the importance of managing exposure to inflation and currency movements. Companies may need to review foreign-currency liabilities, operational contracts, and other sources of macroeconomic risk.
For investors and portfolio managers, coal prices, inflation, and exchange rates can provide important signals when evaluating sharia-compliant energy stocks. Investors may also consider historical price momentum while monitoring global commodity developments and domestic monetary conditions.
For policymakers, maintaining exchange-rate and inflation stability could help reduce excessive volatility in resource-based equities. The study recommends continued attention to foreign-exchange stability and broader macroeconomic conditions.
Mulyani Lestari and Renny Oktafia of Universitas Pembangunan Nasional “Veteran” Jawa Timur emphasize, through their empirical findings, that sharia-compliant coal stocks remain closely connected to both global commodity conditions and domestic macroeconomic developments. Their analysis suggests that understanding stock-price movements requires looking beyond individual companies to the wider economic environment in which those companies operate.
Future Research Could Expand Beyond Coal Prices
The researchers acknowledge that their analysis focuses on a limited set of macroeconomic and commodity variables. Future research could incorporate company-specific indicators such as debt-to-equity ratio, return on assets, and environmental, social, and governance (ESG) performance.
They also suggest using approaches capable of examining different market conditions, including periods of extreme commodity-price movements or global energy crises. Comparisons between fossil-fuel companies and renewable-energy firms could further clarify how the transition toward cleaner energy affects stock valuations in Indonesia’s Islamic capital market.
About the Authors
Mulyani Lestari is affiliated with Universitas Pembangunan Nasional “Veteran” Jawa Timur and researches topics related to finance, capital markets, macroeconomic factors, and stock-price behavior.
Renny Oktafia is a researcher at Universitas Pembangunan Nasional “Veteran” Jawa Timur, with research interests encompassing economics, finance, Islamic economics, and capital-market issues.
The article text provided does not state the authors’ academic degrees, so no degree titles are added here to avoid introducing unsupported information.
Source
Article: “Determinants of Stock Prices in ISSI-Indexed Coal Companies: Inflation, Exchange Rate, and Coal Commodity Prices”
Journal: International Journal of Economic, Finance and Business Statistics (IJEFBS)
Publication: 2026, Vol. 4, No. 4, pp. 411–422
DOI: https://doi.org/10.59890/ijefbs.v4i4.19
URL: http://journalijefbs.my.id/index.php/ijefbs
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