Indonesian Markets Seen Rallying as Jokowi Takes Early Lead

(Bloomberg) -- Indonesian markets are poised to get a fresh boost Thursday from unofficial election tallies showing President Joko Widodo poised to win a second term.

Five top private polling agencies put Widodo, known as Jokowi, ahead of former general Prabowo Subianto by at least six percentage points with more than 60 percent of the vote counted. That’s likely to trigger further flows into the country’s $1 trillion economy, fueling gains in stocks, bonds and the rupiah, according to investors.

“Barring any sharp correction in the global equities market, there’s a strong chance that the Jakarta Composite Index will test its record high level in the next few days,” said Jemmy Paul, chief executive officer of PT Sucorinvest Asset Management in Jakarta. “The sizable gap between Jokowi and Prabowo so far should give strong legitimacy to the outcome.”

Market Highlights
  • Dollar-rupiah one-month non-deliverable contracts fell 0.7 percent as of 6:08 p.m. local time, set for the biggest decline in a month on a closing basis
  • The rupiah is the second best-performing Asian currency this month as opinion polls have indicated Jokowi was set to win
  • While the Jakarta Composite Index has gained 4.6 percent this year, it’s lagging behind peers in Asia 
  • Yields on 10-year bonds have dropped around 41 basis points this year amid a revival in emerging markets

Local markets are shut on Wednesday for the elections in a re-run of the 2014 race.

Here’s how global investors are reacting to the poll numbers:

Tay Ek Pon, senior portfolio manager for emerging-market debt at BNP Paribas Asset Management in Singapore:

  • “Assuming the final result confirms a Jokowi win, I expect to see more capital inflows into local debt and further rupiah strength.”

Patrick Wacker, fund manager for emerging-markets fixed income at UOB Asset Management Ltd. in Singapore:

  • “The bond markets have priced the possibility of a Jokowi win with polls putting him ahead. In this scenario, there will be policy continuity and we expect spreads to continue to grind tighter, with quasi sovereigns outperforming sovereigns. Economic improvement in the coming years will also be gradual.
  • “The legacy of the Asian financial crisis left many in Indonesia weary of foreign capital and open markets. This mindset is likely to fade gradually. However, two key challenges remain for Indonesia, namely to reduce external vulnerabilities and to boost GDP growth.”

Cristian Maggio, the London-based head of emerging-market strategy at TD Securities:

  • “The market likes continuity and Jokowi is a person who inspires trust in global investors. I’m not implying that Prabowo would definitely be bad in the longer run. Prabowo, however, is seen as somewhat of an unknown quantity; so the market choice is definitely for Jokowi.”

Delphine Arrighi, a London-based money manager at Merian Global Investors:

  • “It implies policy continuity, which is good given still strong growth prospect and contained fiscal outlook. We are overweight both the sovereign and local bonds.”

Anders Faergemann, a senior money manager at Pinebridge Investments in London:

  • “We remain constructive on Indonesia and expect Bank of Indonesia to embark on a rate cutting cycle to reduce the in-build premium to the yield curve from last year’s market volatility.”

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