Indonesian Stocks in Retreat as Jokowi Thwarted: Southeast Asia Indonesian stocks are tumbling at the fastest pace worldwide as investors lose faith in Joko Widodo’s ability to revive Southeast Asia’s largest economy. The Jakarta Composite Index has dropped 3.6 percent since the coalition of parties opposing President-elect Widodo, known as Jokowi, succeeded in electing one of their own as parliamentary speaker on Oct. 2. Alan Richardson, whose Samsung Asean Equity Fund beat 96 percent of peers over the past five years, predicts the gauge may drop 6.6 percent to 4,800 in October. Foreign funds pulled $344 million from the shares last week, the biggest outflow this year, exchange data show. The durability of the so-called Red-White coalition that backed losing presidential candidate Prabowo Subianto will threaten the ability of Jokowi, who takes office on Oct. 20, to implement a policy agenda that includes cutting fuel subsidies, improving tax collection and reducing bureaucracy. The benchmark stock gauge is valued at 14.2 times 12-month estimated earnings, or 33 percent more than the MSCI Emerging Markets Index. “The rising political risk premium in Indonesia means the market’s premium to the region is unjustified,” Richardson, an investment manager at Samsung Asset Management Ltd. in Hong Kong, said in an Oct. 2 interview. “I have trimmed Indonesia to underweight from neutral in September,” he said, adding that he projects property and banking stocks will retreat the most. Direct Elections While Jokowi won 53 percent of votes in the presidential election, his coalition controls only 37 percent of seats in the new parliament. The Red-White grouping includes the Golkar party and Prabowo’s Gerindra party and has 53 percent of the seats. The figure climbs to 63 percent if outgoing President Susilo Bambang Yudhoyono’s Democrat party, which voted with the coalition to appoint the new speaker, is included. The bloc gets its name from the colors of the Indonesian flag. The appointment of the speaker and his four deputies, who are all from the Red-White coalition, enhances the grouping’s ability to counter Jokowi, in particular in setting the budget, Kevin O’Rourke, principal at Reformasi Weekly in Jakarta, wrote in an Oct. 3 report. In one of the last acts of the old parliament, a walkout by the Democrat party enabled the passage of a law scrapping direct local elections on Sept. 26. That was a setback for Jokowi, a former mayor who opposed the measure. The Jakarta Composite (JCI) index has advanced 16 percent this year, fueled by $4 billion of foreign inflows, on speculation Jokowi will revive economic growth from the lowest level in almost five years. A gauge of construction, property and real-estate stocks has jumped 27 percent on expectations the new president will build more roads, seaports and allow foreigners to buy apartments valued at more than 2.5 billion rupiah ($204,717). Rupiah Weakens The recent losses for offshore investors in Indonesian stocks have been exacerbated by a weakening rupiah, under pressure from the political situation, and as the Federal Reserve moves toward ending its stimulus program and raising U.S. interest rates. The rupiah fell 3.7 percent in the past month, the most among Asian emerging markets after Korea’s won. In the “worst-case scenario” of no political improvement and a hawkish Fed, the Jakarta share gauge may drop to the 4,600 to 4,800 range, said Mixo Das, an Asia ex-Japan equity strategist at Nomura Holdings Inc. in Hong Kong. The index rose 0.1 percent today to 4,955.482 as of 9:50 a.m. in Jakarta, after falling 3.6 percent last week. “The market was run up by foreign investors buying on the hope that Jokowi will prevail despite the adversities,” Das said in an Oct. 2 interview. “Since the vote on direct local elections this optimism has been fading. I think it would be appropriate for regional investors to trim back Indonesian equities further to wait for more clarity.” Cabinet Posts PT Mandiri Sekuritas, a unit of the nation’s largest bank by assets, still expects Jokowi to be a “transformational leader, with a massive positive impact on the economy and hence equity values,” John Rachmat, head of research at the firm, wrote in a Sept. 30 research note. “However he needs parliamentary support and the risks of his not getting that are rising significantly now.” Jokowi said Sept. 29 that he wasn’t afraid of complications with parliament, as he has operated as governor of Jakarta and mayor of the city of Solo as part of minority coalitions. Two parties are in the process of switching to his side, he said on Oct. 1 without naming them. The incoming president may also be able to attract some opposition parties by offering them roles in his cabinet, although this could dilute his reform agenda. ‘Uphill Struggle’ “If Jokowi can move a couple of smaller parties over, the dormant domestic investors may find reason to get into the market,” Nomura’s Das said. Infrastructure-related stocks are the most exposed to political gridlock, Deutsche Bank AG analysts Heriyanto Irawan and Samuel Sentana wrote in a Sept. 25 research note in Jakarta. Construction companies PT Wijaya Karya (WIKA) and PT Pembangunan Perumahan fell 9 percent and 3.9 percent, respectively, in the three sessions through today. Producers of consumer staples, such as cigarette maker PT Gudang Garam and PT Indofood CBP Sukses Makmur (ICBP), would be the most resilient, the analysts wrote. “Winning the election wasn’t the hard part, it’s going to be an uphill struggle for Jokowi to push through certain reforms,” Kenneth Akintewe, a senior investment manager at Aberdeen Asset Management Plc in Singapore, which oversees $541 billion, said in an Oct. 3 interview. “We haven’t changed our long-term view of Indonesia, but this does mean that we’ll be attributing a higher risk premium.”
Posted on: Mon, 06 Oct 2014 10:21:37 +0000
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