History Suggests a Boost May Be Coming for Philippine and Indonesian Stocks

(Bloomberg) -- While both Indonesian and Philippine stocks have seen their strong start to the year lose steam, upcoming elections might bring some relief. Not only do the markets tend to gain in the run-up to a ballot, they also tend to climb further after, history shows.

The Jakarta Composite Index advanced in every month preceding a vote, rising by an average 5.1 percent and beating the MSCI All-Country World Index in every instance but one, according to data compiled by Bloomberg going back to the 1980s. The Philippine Stock Exchange Index climbed in the month before an election in seven of the last nine instances.

And once the vote is over, the markets tend to keep their gains going: Since Indonesia began electing its president directly in 2004, the nation’s benchmark gauge jumped an average 22 percent in the six month following a ballot, while it climbed in most instances after a Philippine vote.

Indonesia - Jakarta Composite move
YearMonth BeforeSix Months After
(second round)
(first round)

The lift in sentiment ahead of elections typically comes as governments seek to promote domestic consumption by offering cash handouts and other industry-specific subsidies, according to Pauline Ng, managing director at JPMorgan Asset Management.

“The stock market may get excited in the short term,” said Ng. She oversees funds including the JPM Asean Equity Fund, which beat 77 percent of peers in the past three years. Her strategy is to invest in “domestic champions,” those that will keep growing market share and innovate while benefiting from the new government’s policies.

Philippines - PSEi move
YearElection TypeMonth BeforeSix Months After

Of course, the past doesn’t dictate the future, and this year could be different. In Thailand, which has a general election on March 24, history shows the month prior to a vote also tends to be positive for stocks. But that hasn’t been the case so far, with a 1.9 percent decline in the SET Index since Feb. 22. Foreign investors have pulled more than $322 million net from Thai equity funds this month alone.

Indonesia will hold presidential and general votes in April, while the Philippine’s midterm ballot will take place in May. The latter’s general elections decide on the next president, who will lead changes in policy. The midterms serve to pick more than 18,000 national and local positions, including half the 24-member Senate.

“Sentiment generally prevails” around a vote, said Chetan Seth, Asean equity strategist at Nomura Holdings Inc. in Singapore. “But investors tend to get back to fundamentals as earnings growth comes through, and whether sectors are expensive.”

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