I

ndonesia'€™s stocks index tumbled on Tuesday, along with bonds and the rupiah, as investors showed their disappointment with the final coalition formations ahead of the July 9 presidential election.

The Jakarta Composite Index (JCI) dropped 2.4 percent to 4,895.95, its steepest decline in five weeks, after a two-day streak that took the index across the psychological threshold of 5,000.

The rupiah weakened 0.6 percent, its biggest drop since April 23, to 11,488 per US dollar, while yields on the government'€™s benchmark 10-year bonds rose three basis points to 7.92 percent, according to data from Bloomberg. Yields and prices move in opposite directions.

Analysts said the political situation ahead of the July 9 presidential election had once again had a significant impact on the performance of the market.

Golkar Party chairman Aburizal Bakrie and Gerindra Party chief patron and presidential candidate, Prabowo Subianto, announced on Monday the formation of a coalition between the two parties, which were both runner-ups in April'€™s legislative election.

The new formation presents a new challenge for Joko '€œJokowi'€ Widodo, the Indonesian Democratic Party of Struggle'€™s (PDI-P) presidential candidate, who had been widely expected to win the race. Jokowi and Prabowo are the only candidates for July'€™s election.

'€œInvestors are disappointed with the latest political maneuver, with Golkar declaring its support for Prabowo. This was not what the market had in mind. Investors expected Golkar to join forces with the PDI-P to support Jokowi'€™s candidacy,'€ said Desmon Silitonga, an analyst at Millenium Danatama.

Golkar'€™s support for Gerindra has created a larger coalition than that of the PDI-P; so, if Jokowi become president, it may be harder for him to push through his policies and reforms in the House of Representatives.

Desmon added, however, that besides the political reasons, investors had also sold stocks on the local exchange to make quick profits. The JCI was the worst-performing stock index in the region during Tuesday'€™s trading; even worse than Thailand'€™s, despite the army imposing martial law in the country.

First Capital Asia analyst David Sutyanto said only 30 percent of the JCI'€™s drop was attributable to the weak performance on the regional bourse, adding that the main factor was domestic politics.

'€œInfrastructure shares were among the indexes that suffered the highest decline on Tuesday, and the drop was driven by investors'€™ disappointment with the potential legislative mapping for the future. One of the presidential candidates is known for his speed and commitment regarding infrastructure projects, but the current coalitions reflect that even if he is elected, policymakers might impede his progress,'€ he continued.

According to the General Elections Commission (KPU) final tally, Gerindra, together with Golkar and its three other coalition partners, have a combined total of 47.54 percent of the vote and control 45.3 percent of seats in the House.

All sectors listed on the bourse ended in the red as Tuesday'€™s trading closed, with infrastructure shares dropping by about 2.97 percent. Agriculture recorded its greatest decline with 3.31 percent, while finance shares dropped by 2.69 percent.

The Indonesia Stock Exchange (IDX) led the dismal regional performance, followed by Thailand'€™s SET Index, which dropped by 1.13 percent, and Malaysia'€™s FTSE BM that fell by 0.31 percent. The Philippines'€™ PSE Index and Singapore'€™s FTSE ST both closed in the green.

Both Desmon and David said they predicted the JCI would not record any significant recovery to hit 5,000 again within the next few days, adding that the recent political-driven surge in the index was unexpected given the slowdown in economic conditions.