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The Post-Election Bull Case for Indonesia Equities: Taking Stock

The Post-Election Bull Case for Indonesia Equities: Taking Stock

(Bloomberg) -- With Indonesians heading to the polls today, investors are weighing prospects for the Southeast Asian nation’s $522 billion stock market after the dust settles.

The Jakarta Composite Index could be a prime second-half rebound candidate, up only 4.6 percent this year and lagging the 12 percent rally in the MSCI Asia Pacific Index after outperforming it just one year ago. Agricultural stocks are the main drag on gains, down about 5 percent year-to-date. Indonesian markets are closed Wednesday.

There may be a “post-election rally” assuming a clear election result, said Ferry Wong, head of Indonesian equity research at Citigroup Inc. “The rally will likely be driven mainly by domestic investors as they are the ones who seem more cautious on the election outcome versus foreign investors.”

The Post-Election Bull Case for Indonesia Equities: Taking Stock

Overseas investors have been flooding back into Indonesia ahead of the election, purchasing some $1 billion in stocks in the market this year, the most in Southeast Asia, data compiled by Bloomberg show. The market has rallied six months before and after every election since direct presidential polls were introduced in 2004.

The Post-Election Bull Case for Indonesia Equities: Taking Stock

One group of stocks that traders have been buying up is construction companies. The Jakarta Construction, Property and Real Estate Index has gained 13 percent this year, making it the best sub-gauge in the stock market.

For some strategists, no matter who becomes the nation’s next leader, infrastructure-related shares will extend gains as development will carry on regardless of the election result. Last week PT Sucorinvest’s Jemmy Paul said Indonesia needs to develop infrastructure “massively” and that will have to continue.

The Post-Election Bull Case for Indonesia Equities: Taking Stock

The International Monetary Fund projects 5.2 percent growth for Indonesia in both 2019 and 2020, identical to 5.2 percent growth last year. While first-quarter data suggests some deceleration moving into 2019, “solid economic fundamentals should help Indonesian assets outperform this year,” said Win Thin, global head of currency strategy with Brown Brothers Harriman & Co. in a note to clients.

“Indonesia has the luxury where it’s an economy that naturally wants to grow,” said Christopher Watson, London-based portfolio manager for total return strategy at Finisterre Capital, in an April 12 interview in Hong Kong. “Demographics are in its favor, you have a large population, you have a reasonable resource base, increasing potential for the development of manufacturing.”

And if you’re looking for any indication of how stocks might react Thursday when markets reopen, the U.S.-listed iShares MSCI Indonesia ETF could be one place to watch overnight. The fund rose 1.2 percent Tuesday.

Stock-Market Summary

  • MSCI Asia Pacific Index little changed
  • Japan’s Topix index flat; Nikkei 225 little changed
  • Hang Seng index -0.1%; Shanghai Composite index -0.2%
  • Taiwan’s Taiex index up 0.4%
  • South Korea’s Kospi index down 0.2%; Kospi 200 down 0.2%
  • Australia’s S&P/ASX 200 down 0.4%; New Zealand’s S&P/NZX 50 up 0.4%
  • Singapore’s Straits Times Index up 0.1%; Malaysia’s KLCI down 0.3%
  • S&P 500 e-mini futures little changed after index closed little changed in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Divya Balji, Cormac Mullen

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