Foreigners Are Piling Into Indonesian Stocks Ahead of Elections

(Bloomberg) -- As Indonesians head to the polls to vote next week, foreigners are flooding back into the stock market.

They’ve been buying up the nation’s stocks for seven straight days, the longest streak of inflows since January, when the stronger rupiah boosted investor sentiment. This year alone, foreigners have purchased more than $1 billion worth of Indonesia stocks -- the most in Southeast Asia, Bloomberg data show. The market has rallied six months before and after every election since direct presidential polls were introduced in 2004.

Foreign capital has flooded back into the market after a “relatively robust” fourth-quarter earnings season and possibly on the back of a bond rally, CGS-CIMB analyst Erwan Teguh said in an April 10 report. “The upcoming presidential election does not seem to have resulted in many jitters.”

Property and construction stocks were the favorite sectors based on net purchases by all investors, Teguh said in the report. A gauge of the sector on the Jakarta Composite Index has climbed more than 6 percent this year, rallying from a two-year slump, while the main benchmark has gained 3.5 percent.

Credit Suisse Group AG on Thursday raised Indonesian stocks to market weight from underweight in its Asia allocation, citing “average” relative valuation, a rupiah that is still looking cheap on a long-term basis and the country’s potential for rate cuts. “With the region’s highest real bond yields, Indonesia has the best medium-term rate cut potential in Asia,” strategists Dan Fineman and Kin Nang Chik wrote in a note.

They stopped short of raising the stocks to overweight saying Indonesia’s current account needs to show clear signs of improvement for any further reduction in borrowing costs, the stock market currently seems fairly valued and the economy has yet to bottom.

--With assistance from Matt Turner and Abhishek Vishnoi.

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

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

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