Indonesia Stocks Edge Out Philippines in Asia's Race to Bottom

(Bloomberg) -- Stock markets tend to prove resilient in the face of terror. But for Indonesia, a series of attacks in recent days has further shattered confidence among equity investors.

The nation’s shares overtook the Philippines in the race to the bottom, with the incidents adding to concerns about the strength of the expansion and corporate earnings outlook for Southeast Asia’s biggest economy.

The Jakarta Composite Index sank 1.8 percent on Tuesday, taking its retreat to 8.1 percent for the year, the biggest among major Asian benchmark gauges. The Philippine Stock Exchange PSEi Index extended its rebound into a third day, paring 2018’s losses to 7.9 percent.

“Historically, these terror attacks shouldn’t have long-term impact on the market.” said Norico Gaman, head of research at PT BNI Sekuritas in Jakarta. “But the intensity of terror attacks this time is quite intense, and that has shaken investors’ confidence in Indonesia.”

For Morgan Stanley, now is the time to stop selling Indonesian equities. The plunge has resulted in more attractive valuations, and strategists Sean Gardiner and Aarti Shah upgraded their recommendation on the nation’s shares to equalweight from underweight.

It’s not yet time to buy, though: a strong U.S. dollar, which they expect will last through the summer, could lead to a better entry point in the third quarter. Still, they warn that weak consumption and the potential for a slowdown in earnings are risks to note.

The Jakarta Composite Index is the world’s biggest loser this year, following benchmark measures of Dubai, Turkey and Mongolia, according to data on 95 national gauges tracked by Bloomberg.

To contact the reporters on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net, Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Cecile Vannucci

©2018 Bloomberg L.P.