THE IMPACT OF THE COVID-19 PANDEMIC ON STOCK MOVEMENT OF 2

SOE PHARMACEUTICAL COMPANIES IN INDONESIA

ABSTRACT

Roechainy Kartika Ulfa and Ris Yuwono Yudo Nugroho

The uncertainty of the global economy from the impact of the Covid-19
pandemic has caused losses to the stock market, making it unstable and
impulsive. The purpose of the research was to find out how the exchange rate
variable, the composite stock price index (JCI), and the development of the
Covid-19 case on the movement of stock price volatility of 2 Soe Pharmaceutical
companies during the Covid-19 pandemic in Indonesia. This research uses a
quantitative approach with secondary data sources. The focus of the research is
on the impact of the Covid-19 pandemic and the influence of other variables on
the stock prices of 2 state-owned pharmaceutical companies, namely PT. Kimia
Farma Tbk and PT. Indofarma Tbk. The data analysis technique used was
Generalized AutoRegressive Conditional Heteroscedasticity (GARCH). The
results of this reseacrh reveal that together the Covid-19 case variables, JCI, and
the exchange rate can have an impact on increasing the stock price of Soe
Pharmacy. The growth of the Covid-19 case as well as the movement of the JCI
value and the exchange rate actually had a positive impact on the stock price
movements of 2 Soe Pharmaceutical companies in Indonesia.
Keywords: Pharmaceutical stocks, Covid-19 cases, JCI, Exchange Rates.

I. Introduction
Coronavirus Disease 2019 (COVID-19) has become a global pandemic or

outbreak that has spread across continents. Until the first week of May 2020,

there were at least 4.1 million people, of which 276,000 died and 212 countries

were infected. This epidemic has caused more than 8.9 billion people in various

parts of the world to worry (Hergaty, 2020). Countries experiencing the Covid-

19 outbreak are forced to undergo a social distancing phase (maintaining a safe

distance, staying at home, working from home, even worshiping at home) for

months. (Junaedi & Salistia, 2016). According to the Monetary International Fund

(IMF) the coronavirus pandemic is damaging the world economy. The IMF

predicts that world economic output will shrink by almost 5 percent or 2 percent.
The corona virus has hampered world activities and global financial markets have

experienced uncertainty.

Shiyammurti et al. (2020) stated that the emergence of the corona virus or

Covid-19 outbreak in Indonesia caused the capital market to experience a decline

earlier this year. The outbreak of the corona virus or Covid-19 has shaken the

stock market and financial markets in the country, setting a new record and

causing the Composite Stock Price Index (JCI) to fall to a fairly low level. Syarif

and Asandimitra (2015) in his research stated that the capital market is one of the

factors that support the economy of a country, and can provide an overview of

the country's economy because it has two functions. The first function is to

provide business funding services or as a medium for companies to obtain funds

from the public (investors). Second, the capital market has a function as an

intermediary for the public in carrying out investment activities in financial

instruments.

Source: Worldometer (2020)

Figure 1. Growth in the Number of Covid-19 Cases in Indonesia

March – October 2020

Based on graph 1.1, the growth of positive cases of Covid-19 during the

seven months of the pandemic is increasing every month. The increase is very
drastic every month. The issue of Covid-19 has made consumers and companies

around the world reduce their activities and developments that will occur

(Novalina & Russiadi, 2020). The outbreak of the Covid-19 virus is external

information that can indirectly have an impact on buying shares in particular

(Putri, 2020)

Based on data on the Indonesia Stock Exchange in 2016, there are three

ranking sectors with the highest share value, namely the financial sector, the

consumer goods industry sector, the infrastructure sector, utilities, and

transportation. (Anggraini, 2018). In the consumer goods industry sector, there is

a pharmaceutical sub-sector that fulfills the need for drugs in the community. The

need for drugs will always exist and increase, so that pharmaceutical stock prices

have the potential to continue to increase. Pharmaceutical stocks have very good

prospects in the future, as well as a growing industry. Various business sectors

have been affected by the Covid-19 pandemic, including the pharmaceutical

stock industry sector in various parts of the world. That's because 60 percent of

the active pharmaceutical raw materials used worldwide are produced by China

(Herdady & Muchtaridi, 2020).

 Source: Indonesia Stock Exchange (2020)

Figure 2. Average Pharmacy Stock Price April – October 2020

Based on graph 1.2. It can be seen that every month the average share

price of Pharmaceutical companies tends to increase during the seven months of

the Covid-19 pandemic. The average share price of Pharmacy only decreased in

September from Rp 1751.2 to Rp 1666.5. However, in October the average

share price of Pharmacy increased again to Rp 1770.1.

Herdady and Muchtaridi (2020) said, The Corona virus outbreak made the

pharmaceutical industry in China enforce a system of lockdownand activity

restrictions by shutting down industries. This has the potential to cause

bottlenecks in the pharmaceutical supply chain, which will affect the movement of

pharmaceutical stocks during the Covid-19 pandemic. The pharmaceutical

industry in various parts of the world has been very dependent on the supply of

medicinal raw materials from China since 2013. Since 2018, China is the largest

pharmaceutical producer in the world, 32.2 percent of pharmaceutical products

experienced an increase in 2013 (Herdady & Muchtaridi, 2020). This causes

China to occupy the number one position as a producer of pharmaceutical raw

materials.
 The Covid-19 outbreak has caused the stock market to decline. This is

because the stock market responds quickly to risks arising from COVID-19 and

the stock market index shows rapid depreciation (Senol & Zeren, 2020). The

uncertainty of Covid-19 and the associated economic loss has made the stock

market very volatile and impulsive (Chowdhury & Abedin, 2020). News related to

Covid-19 had a positive impact on stock market volatility in Europe. The first

months of the Covid-19 outbreak showed a significant impact on financial

markets and the real economy, the strength of the news in strengthening the

market resulted in uncertainty, but the data showed that there was indeed no

significant impact from the change in news about Covid-19 on the stock market

gains (Ambros et al. 2020).

II. Methods

A. Data

Researchers use secondary data time seriesThe case of share prices of 2

state-owned pharmaceutical companies, namely PT Kimia Farma Tbk and PT

Indofarma Tbk, the development of the number of Covid-19 cases in Indonesia,

the Composite Stock Price Index (JCI), and the exchange rate of the rupiah

against the dollar. Each data consists of 120 observations, which are active

working days of the Indonesia Stock Exchange, which is from April 1, 2020 to

September 30, 2020 or for 6 months during the pandemic. The research began

on April 1, because on that date the Government Regulation (PP) regarding

Large-Scale Social Restrictions (PSBB) related to the Corona emergency had

come into effect in Indonesia.”

B. Covariates
 The dependent variable of this research is the pharmaceutical stocks of Soe

PT Kimia Farma Tbk and PT Indofarma Tbk which are combined into one

average obtained from the Indonesia Stock Exchange website. There are 3

independent variables in the research, namely the development of the number of

Covid-19 cases in Indonesia originating from

https://www.worldometers.info/coronavirus. Furthermore, the JCI variable was

obtained directly from the Indonesia Stock Exchange website, and the USD-IDR

Jakarta Interbank Spot Dollar Rate (JISDOR) reference rate variable was

sourced from the Bank Indonesia website.

C. Statistical Methods

"The data analysis technique used by the researcher is quantitative analysis

using the GARCH model or Generalized AutoRegressive Conditional

Heteroscedasticity. Before being analyzed using GARCH. Prior to GARCH

analysis, the data was tested stationary first. The resulting model is then tested

for classical assumptions, namely normality test, heteroscedasticity test, and

autocorrelation test.

III. Result

A. Stationerity Test

Table 1.

Level Stationary Test Results First Difference

ADF Critical Value

Variable Information
value Mackinnon 5%

LSF Stationary
-10.01444 -2.883239
LKC Stationary
-3.046571 -2.88393
 LIHSG Stationary
-12.3957 -2.10883
LCURS 0.00000 Stationary
-11.7346
Source: Output Eviews

Based on Table 1, it can be seen that all variables are stationary at the level

first different. Stationarity conditions have been met because each ADF value is

higher than the Mac Kinnon critical value of 5%. The variables LSF, LKC, LIHSG,

and LKURS are both stationary at the First Difference level.

B. GARCH analysis

Table 2.
GARCH Analysis Results

Coefficie
Variable Std. Error z. statistics Prob
nt
Cons -77.8163 0.861155 -90.3627 0.0000*
LKC 0.381687 0.006108 62.48699 0.0000*
LIHSG 0.527467 0.014207 37.12622 0.0000*
LCURS 7.972224 0.100254 79,52065 0.0000*
Variance Equation
C 0.004522 0.001612 2.805564 0.0050*
RESID(-1)^2 0.998232 0.279574 3.570543 0.0004*
GARCH(-1) -0.139557 0.062148 -2.24557 0.0247*
R-squared 0.782069
Adjusted R-squared 0.776433
Number of Variables
4
(k)
Number of
120
Observations (n)
Source: Output Eviews*) Significant at 0.05 (5%)

LSF -77.81 0.381*LKC 0.52*IHSG 7.97*COURSE

GARCH 0.004 0.99*RESID(-1)2 0.13*GARCH(-1)

In table 2. it can be seen that the probability value of the Covid-19 case

variable (LKC) is 0.0000 less than 0.05 and the coefficient value is 0.381687,

meaning Covid-19 case significant positive effect on the variable pharmaceutical

stock (LSF). The coefficient of Covid-19 cases is positive, it shows that every 1

percent increase in Covid-19 cases can increase pharmaceutical stock prices by

0.38 percent. The probability value of the composite stock price index (LIHSG)

variable is 0.0000 less than 0.05 and the coefficient value is0.527467, This

means that the JCI has a significant positive effect on pharmaceutical stocks. The

JCI coefficient is positive, it shows that a 1 percent increase in the JCI can
increase pharmaceutical stock prices by 0.52 percent and vice versa. The

probability value of the exchange rate variable (LKURS) is 0.0000 less than 0.05

and the coefficient value is7.972224, meaning that the exchange rate has a

significant positive effect on pharmaceutical stocks. The exchange rate coefficient

is positive, it shows that every 1 percent increase in the exchange rate can

increase pharmaceutical stocks by 7.97 percent.

Resid (-1)2or the arch term, which is the previous day's time series, which

affects the volatility of the LSF variable. Resid probability value (-1)20.0004 and

the coefficient value is 0.998232, it means Resid (-1)2 has a significant positive

effect on the pharmaceutical stock price variable. The Resid (-1)2 coefficient is

positive, so every 1 percent increase in Resid(-1)2 value will increase the value of

the pharmaceutical stock variable by 0.99 percent.Garch (-1) or Garch term is the

volatility of the LSF variable before affecting the volatility of the LSF variable. The

probability value of Garch (-1) is 0.0247 less than 0.05 and the coefficient value is

-0.139557, meaning that Garch (-1) has a significant negative effect on

pharmaceutical stock prices. The Garch (-1) coefficient is positive, so every 1

percent increase in the value of Garch (-1) will decrease the value of

pharmaceutical stocks by 0.13 percent.

C. Classic assumption test

1. Normality test
 Figure 3. Normality Test Results

The table above shows the results of a descriptive analysis of all the

variables, namely the pharmaceutical stock variable (LSF), the covid-19 case

variable (LKC), the JCI variable (LIHSG), the exchange rate variable (LKURS) for

the period 1 April 2020 – 30 September 2020. These results can be it can be

seen that the data has a standard deviation of 1.037461 and a mean of

0.116930. A small standard deviation value indicates that the data is stationary.

The minimum value for all variables in this research is -1.780262. Then, the

Jarque-Bera probability is 0.293271 or more than 0.05 (5%). This means that the

data used in this research were normally distributed.

2. Autocorrelation Test

Based on the results of the autocorrelation test using correlogram squared of

residual in appendix table 7, it can be seen that the p-value on the correlogram

squared of residual is > 5%. It means that the residue is already homocesdastic

and there is no serial correlation in the model. So it can be concluded that the

model passes the autocorrelation test.

3. Heteroscedasticity Test

Table 3.

ARCH LM Test Results

Prob. F(1.117) 0.0887*

Prob. Chi-Square(1) 0.0873*
Source: Output Eviews *) Heteroscedasticity at 0.05
 Based on table 4.5 above, it can be seen that at prob(Obs*R2 ) > =5%, which

is equal to 0.0873 less than 0.05 (5%) then H0 is accepted and H1 is rejected.

This means that it can be concluded that the model no longer contains elements

of heteroscedasticity or passes the heteroscedasticity test.

IV. Discussion
Table 2 shows that Covid-19 cases (LKC) have a positive and significant

relationship to Pharmacy stock prices. This indicates that when there is an

increase in Covid-19 cases, the stock price of Pharmacy tends to increase. The

results of this research are not in accordance with previous research, Rajamohan

et al (2020), Yong et al (2021), Senol and Zeren (2020), Chowdhury and Abedin

(2020) which resulted that the Covid-19 case variable had a significant negative

effect on stock prices, but in this research the Covid-19 case variable had a

significant positive effect on Pharmacy stock prices.

Table 2 shows that the Composite Stock Price Index (LIHSG) has a positive

and significant relationship to Pharmaceutical stock prices. This indicates that

when the JCI increases, the stock price of Pharmaceuticals tends to increase.

The Composite Stock Price Index is one of the main indicators that reflects the

performance of the capital market.The results of this research are in line with the

research of Mie and Agustina (2014) which states that the JCI is a concern for all

investors on the Indonesia Stock Exchange, because the JCI records the stock

price movements of all securities listed on the Indonesia Stock Exchange.

Table 2 shows that the exchange rate (LKURS) has a positive and significant

relationship to pharmaceutical stock prices. This indicates that when there is an

increase in the exchange rate, the stock price of Pharmacy tends to increase.

The results of this research are in line with research Tandelilin (2015), Setyani
(2017), Muktadir-al-Mukit (2013), and Samsul (2015). According to Tandelilin

research (2015),Setyani (2017), Muktadir-al-Mukit (2013), and Samsul (2015) the

exchange rate is a positive signal for stock prices.

V. Conclusion

Based on the estimation results of the GARCH model in the analysis and

discussion, it can be concluded that the Covid-19 pandemic condition will affect

the stock price of Pharmacy. The increase in the number of Covid-19 cases in

Indonesia has a positive and significant impact on the stock prices of

Pharmaceuticals PT Kimia Farma Tbk and PT Indofarma Tbk continue to rise. It

is supported by other variables, namely the composite stock price index (CSPI)

variable and the exchange rate variable (Exchange rate) which also affect the

stock price of Soe Pharmacy during the Covid-19 pandemic. The JCI variable has

a positive and significant effect on pharmaceutical stock prices, and the

exchange rate variable has a positive and significant effect on pharmaceutical

stock prices. Together, an increase in the Covid-19 case variable, the JCI, and

the exchange rate can have an impact on increasing the stock price of Soe

Pharmacy.

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