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nvestors dumped Indonesian assets a day after the country'€™s legislative election resulted in an unexpected weak showing for the political party behind popular presidential candidate Joko '€œJokowi'€ Widodo.

Foreign investors sold Rp 1.45 trillion (US$127.7 million) worth of Indonesian stocks on Thursday, leaving the benchmark Jakarta Composite Index (JCI) plunging 3.16 percent, the steepest in eight months, to 4,765.

The rupiah also weakened 0.6 percent to Rp 11,355 per US dollar, according to prices from local banks as quoted by Bloomberg. Yields on the government'€™s 10-year benchmark bonds climbed three basis points to 7.87 percent.

The Indonesian Democratic Party of Struggle (PDI-P) appeared to have won the legislative election on Wednesday but failed to get enough votes to nominate Jokowi, who has been considered the frontrunner by several polls, without forming a coalition.

'€œThe market was disappointed because the legislative election did not yield results that could strongly support a [Jokowi] government,'€ Jeffrosenberg Tan, a Jakarta-based fund manager with Sinarmas Asset Management said. '€œExpectations on PDI-P have been running too high.'€

The PDI-P topped various quick counts, but it is estimated to have garnered only 19 percent of the popular vote. That was below the minimum 25 percent of the vote required for parties to nominate a presidential candidate without forming coalitions, and way below the party'€™s target of 27 percent.

The Golkar Party came second with 15.02 percent, followed by Gerindra Party with 11.76 percent, based on a Kompas quick count before the final result is officially announced on May 9.

If the electability level of Indonesia'€™s next ruling party falls short of 25 percent of the vote, it could create '€œuncertainty in the market'€, as it would be tough for the party to form a small and solid coalition, noted Dini Anggraeni, a fixed-income analyst with Maybank Kim Eng Securities, a sentiment echoed by other analysts.

A coalition could potentially complicate policy-making in the future and affect Indonesia'€™s reform agenda, which had been long awaited by foreign investors, analysts said.

With no single party being able to field its own presidential candidate, Indonesia might be heading into '€œa volatile political landscape in the run-up to the presidential election'€, ANZ Bank economist Daniel Wilson said.

A second-round presidential election might lead to a longer election cycle, which could slightly lift domestic consumption, but would lead to a slowdown in investment due to uncertainties, he added.

'€œIn the short term, coalition posturing will be of keen interest and the role of Golkar could be a key swing factor,'€ Wilson said.

Indonesia'€™s democratic legislature is well-known for its about-face politics, in which the government'€™s coalition partners might reject government policies, frequently requesting political concessions at the last minute in return for their legislative approval.

In contrast with Indonesia, most regional markets rose yesterday, with benchmark indexes in the Philippines and Thailand surging 0.78 percent and 0.55 percent, respectively. Stock markets in China, Hong Kong and the US advanced by more than 1 percent.

Bank Indonesia spokesperson Peter Jacobs brushed off concerns about the outflows, saying that pressure on the rupiah and financial market would be temporary.

The outflows were nothing serious and the markets would soon recover, he said, noting that the sell-offs were driven by temporary election-related sentiments, not by concerns of deterioration in Indonesia'€™s economic fundamentals.

'€œWe think the correction will be temporary. It is still a healthy correction for the market to be more rational and to be less sentiment-driven,'€ Bank Danamon economist Anton Hendranata said.

The JCI surged 12 percent in the first three months of this year and the rupiah rallied 7.1 percent as foreign investors poured in funds at a record pace on speculation that Jokowi would win the July 9 presidential election, boosting investment and pushing through reforms. The rally has brought the local stock index'€™s price-to-earnings ratio to its highest level since 2009. (est)