Indonesian Stocks, Rupiah Climb as Jokowi Wins Second Term

(Bloomberg) -- Indonesian stocks and the rupiah jumped after unofficial results showed Joko Widodo defeating Prabowo Subianto by a comfortable margin, set for his second term as president of the world’s third-largest democracy.

Seven top private polling agencies had Widodo, known as Jokowi, ahead of Prabowo by at least seven percentage points with about 99 percent of the vote counted. While the official result will only be announced in May, polls from private companies have proven accurate in past elections.

Indonesian Stocks, Rupiah Climb as Jokowi Wins Second Term

“It’s time to brush aside tail risk concerns and buy Indonesian equities,” Morgan Stanley analysts Sean Gardiner and Aarti Shah said in a report published Wednesday. There is potential for further interest-rate cuts (Morgan Stanley expects three in the third quarter), a return of private sector confidence and reform, they said.

Market Highlights:
  • Jakarta Composite Index rose as much as 2.4 percent before paring back to 0.4 percent climb
  • Rupiah gained 0.3 percent to 14,045 against the dollar, the strongest in almost two months.
  • The yield on Indonesia’s 10-year bonds fell three basis points to 7.59 percent

Opinion polls, which indicated Jokowi was set to win, may have helped allay concerns for investors. Foreign funds, which have been net sellers of Indonesian equities in the past two years, have pumped in $961 million this year, in addition to channeling $3.8 billion into the country’s sovereign bonds, according to data compiled by Bloomberg.

Stocks

Banks and construction companies may gain more than others as the incumbent is likely to carry on the $350 billion infrastructure building boom that became a highlight of his first term, according to Jeffrosenberg Tan, strategist at PT Sinarmas Sekuritas. Investors, who have been underweight on Indonesia because of uncertainties surrounding the election, will return, he said.

The president has pledged to complete the 2,765-kilometer trans-Sumatra toll road as well as improve internet connectivity in Southeast Asia’s biggest economy. His re-election may guarantee policy continuity and ensure continued flow of foreign funds, according to Tan.

“Equities market is expected to gain in the medium term as a landslide win leaves no room for dispute,” Tan said. “Investors, who have been underweight on stocks have to buy back. The flow of foreign direct investment will rise as the victory of the incumbent will ensure political and regulatory stability.”

After a brief surge to 2.4 percent at the trading open, Indonesian stocks pared the rally to 0.4 percent at close.

“Pent-up buying from foreign long-term value investors and local institutionals to collectively push the index higher,” Taye Shim, head of equities and capital market at PT Mirae Asset Sekuritas Indonesia said. “Any profit taking by the retail investors should be considered a good buying opportunity.”

The iShares MSCI Indonesia exchange-traded fund closed 1.9 percent higher on Wednesday, reaching its highest since Feb. 8.

Rupiah, Bonds

Some expect the rupiah to strengthen further and for more inflows into debt. “Assuming the final result confirms a Jokowi win, I expect to see more capital inflows into local debt and further rupiah strength,” said Tay Ek Pon, senior portfolio manager for emerging-market debt at BNP Paribas Asset Management.

The potential for interest-rate cuts from the Bank of Indonesia could also boost the allure of local bonds.

“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,” said Anders Faergemann, a senior money manager at Pinebridge Investments in London.

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