Indonesia Stocks Are Having a Bad Year. It Could Get Worse

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Political instability and security risks ahead of the announcement of presidential election results on Wednesday may put further pressure on Indonesian stocks, already the second worst-performing major market in Asia this year.

The Jakarta Composite Index is down 4.6% since the start of 2019 after suffering its worst week in 13 months last week. Local stocks were sold off on Indonesia’s worse-than-expected trade balance for April and the pending weighting increase for Chinese shares in MSCI indexes, as well as the escalating trade war between U.S. and China.

The April 17 vote result adds another layer of concern, according to Jemmy Paul, chief executive officer of Sucorinvest Asset Management. While President Joko Widodo is expected to be confirmed for a second term by the election commission, his rival Prabowo Subianto continues to claim victory despite an official ongoing count showing the incumbent leading by a double-digit margin.

“Investors are still jittery,” Paul said by phone on Friday. “What if the losing candidate cannot accept defeat? What’s next? So security and political stability issues will cloud trading next week.”

Prabowo, as the former general is called, has complained about widespread voter fraud and said there is collusion between Widodo, the election commission and security authorities, while warning of possible unrest. Police remain on high alert and security officers have been deployed at various locations around Jakarta ahead of the vote tally announcement.

Overseas investors sold a net $251.1 million worth of Indonesian stocks last week, the biggest weekly outflow since Oct. 12. Sucorinvest estimates foreigners to sell another $300 million by the end of May amid local security risks and ahead of the MSCI adjustment on May 28, which is expected to shift funds away from Asian markets toward China.

Nevertheless, Paul predicts that the JCI will rebound to 6,700 by the end of the year, up 13% from the benchmark’s current level. Sucorinvest favors blue chips such as PT Bank Mandiri and PT Bank Rakyat Indonesia following recent declines, as well as PT Adaro Energy and PT Aneka Tambang on low share prices and stabilizing coal prices.

--With assistance from Harry Suhartono.

To contact the reporter on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Kurt Schussler, Teo Chian Wei

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