As Indonesians head to the polls on Wednesday, market strategists are tipping a much-needed boon for the nation’s sharemarket if presidential hopeful Jakarta governor Joko Widodo is elected.
The Jakarta Composite Index (JCI) was trading 1 per cent higher on Tuesday afternoon. It has lifted 3.3 per cent since July 1, buoyed by foreign investors flocking to the market as exit polls tip an increasing chance that Jakarta governor Mr Widodo will win the vote.
Over the past year, Indonesia was the worst-performing equity market in Asia, while India delivered the strongest returns. But the JCI has risen 16 per cent since January 1 as Mr Widodo, considered by most economists as the more market-friendly candidate, has risen in popularity with voters.
But opinion polls released in the past week suggest Mr Widodo and main rival Prabowo Subianto, who last week won the endorsement of incumbent Susilo Bambang Yudhoyono, are now neck-and-neck. Polls earlier in the year gave Mr Widodo a substantial lead.
“The exit polls are too close for comfort,” UBS chief economist Indonesia Edward Teather said. UBS currently has a 12 month target on the JCI of 5000 points, but this could be revised if Mr Widodo wins government.
“Post-election policy, whoever wins, will be more practical than some of the campaign rhetoric. However neither party looks set to embrace the liberal reform agenda that would most directly unlock Indonesia’s growth potential,” Mr Teather said.
Fidelity ASEAN Fund portfolio manager Gillian Kwek said that while there is a lot of optimism among investors that Mr Widodo will win, the election of Mr Subianto does not necessarily bode badly for the market longer term. “Both candidates seem strong leaders and pragmatic businessmen, who are aware of the issues Indonesia faces in the longer term,” Ms Kwek said.
“The new president will need to tackle some of the longer-term issues facing the country like improving infrastructure, reducing reliance on subsidies and driving more business investments so that Indonesia can turn into a current account surplus country without having to rely so heavily on commodity prices,” she said.
But other fund managers invested in Indonesia are pinning greater hopes on a change of government that could see their Indonesian holdings rise in value amid a post-election glow.
Acorn Capital head of equities Douglas Loh is optimistic the election of Mr Widodo could provide a halo effect for Indonesian shares, much as the March election of Narendra Modi to the head of government in India has done in that country.
“If Mr Widodo comes to power we have no doubt it will provide a boon for sentiment that helps the Indonesian sharemarket lift dramatically in the short term, just as Modi’s win did in India,” Mr Loh said.
A change of rule for our nearest neighbour could also create opportunities for Australian exporters.
“Over the past few years Indonesia has had an increasingly nationalistic stance on resources rights and export policies. If Mr Widodo is elected this would likely be relaxed over the coming years,” Mr Loh said.
The official result is scheduled by July 22, with the elected president to take office in October.