Indonesia Stocks Climb to One-Year High as Rupiah Rises on Vote

Jul 09, 2014 10:37 pm ET

July 10 (Bloomberg) -- Indonesian stocks rose to a one-year high and the rupiah touched the strongest level in seven weeks after Joko Widodo said unofficial counts at polling booths showed him winning yesterday’s presidential race.

The Jakarta Composite Index added 1.6 percent to 5,103.85 as of 9:22 a.m. in Jakarta, heading for its highest close since May 2013, as financial companies such as PT Bank Rakyat Indonesia led the advance. The gauge rose as much as 2.8 percent earlier. The rupiah gained 0.4 percent to 11,588 per dollar, according to prices from local banks, after touching the strongest level since May 22.

Foreign money managers have plowed more than $4 billion into Indonesian shares since December, surpassing the full-year record, on optimism Widodo will replicate nationally the success he had as Jakarta governor in cutting red tape and boosting investment. Widodo, known locally as Jokowi, had about a five percentage point lead, according to unofficial counts from two survey companies that declared him the winner, a projection disputed by his opponent, Prabowo Subianto.

“So far Jokowi-related stocks such as construction, infrastructure and banks are seen as the beneficiaries of this rally,” said Priyo Santoso, the chief investment officer at PT Mandiri Manajemen Investasi in Jakarta, which oversees about 23 trillion rupiah ($2 billion). “I think this rally will be a short-term one.”

Indonesians will have to wait until July 21 or 22 for final results to be announced, and possibly until late August if there are legal challenges.

ETFs Rise

The yield on Indonesia’s 8.375 percent sovereign bonds due March 2024 fell one basis point to 8.04 percent, according to data compiled by Bloomberg. The yield has dropped 10 basis points, or 0.1 percentage point, this week.

U.S. investors piled into an exchanged-traded fund of Indonesian shares yesterday, sending it to an eight-week high. The iShares MSCI Indonesia ETF jumped 4 percent to $29.35 in New York, the highest close since May 16.

“Indonesia could get its first popularly-elected president with a solid background in the private sector and who is staunchly committed to fighting corruption and putting the economy on a stronger footing,” John Krey, an analyst at S&P Investment Advisory Services in New York, said in an e-mailed response to questions. “If Widodo is elected, expect a relief rally for both the stock market and the currency that will likely taper off once the new president takes office later this year.”

Share Inflows

Indonesia’s one-month non-deliverable rupiah forwards traded offshore rose 0.1 percent to 11,569 per dollar, extending their rally since July 3 to 3.7 percent, according to data compiled by Bloomberg.

“All of us can be grateful that based on the quick counts up to now, Jokowi-JK are winning,” Jokowi told reporters in Jakarta yesterday, referring to his running mate Jusuf Kalla. “I ask all Indonesian people to preserve the people’s will and make sure no one tries to taint the aspirations of the people.”

Prabowo said yesterday that it looked like he had won based on “information that’s coming in from quick counts of various survey companies that we used as guidance.”

“We don’t think the rupiah’s gains will be sustained,” said Prateek Gupta, a currency strategist at Nomura Holdings Inc. in Singapore. “The key near-term focus will be on comments from Prabowo as he isn’t conceding his defeat. Any changes to his stance will be important for rupiah moves.”

‘Mild Positive’

The Indonesia ETF has rallied 14 percent since a low on June 27. A Jokowi victory has been mostly priced into the stock market, according to Macquarie Investment Management and Banque Internationale à Luxembourg.

“It’s a mild positive for the equity market but I am not forecasting any wild appreciation of Indonesia stocks,” Sam Le Cornu, who helps oversee about $1 billion at Macquarie and has a small underweight position in Indonesia, said by phone from Hong Kong. “The market may have got a bit ahead of itself.”

The Jakarta index is valued at 14.7 times estimated earnings for the next 12 months, versus the five-year average of 13.7 and a multiple of 11 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg.

Speculation of a Jokowi victory helped send the benchmark index of shares into a bull market in March when he joined the race. Pledges by Prabowo, a former general and once son-in-law of the dictator Suharto, to borrow heavily and renegotiate contracts with foreign companies alarmed some investors.

Slowing Economy

Both candidates campaigned on populist platforms to spur growth, reduce poverty, build infrastructure and help farmers. They promised to keep the export ban in place and neither mentioned fuel subsidies in the final leaders’ debate.

Indonesia’s new president will inherit an economy that grew at the slowest pace since 2009 last quarter. Exports have fallen in four of the first five months of the year following a partial ban on the export of mineral ores that started in January, while costly fuel subsidies make government finances vulnerable to increases in global oil prices.

“While the quick counts should be treated with caution, early indications that Widodo has squeaked past Subianto will be greeted positively by markets,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in e-mailed comments. “From a market standpoint, it would obviously be more preferable if Widodo’s margin of victory was significantly wider. A divided nation is the worst possible outcome as far as the politics of reform are concerned.”

--With assistance from Gabrielle Coppola and Edith Waringa Kamau in New York and Jennifer Tan and Weiyi Lim in Singapore.