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lmost Rp 1.6 trillion (US$138 million) worth of foreign funds flowed into the Indonesian stock market on July 8, the day before the presidential election, pushing up the benchmark Jakarta Composite Index (JCI) by 0.7 percent to 5,024. It surged by 1.7 percent the day before.

The shares of Bank Mandiri, the biggest Indonesian lender, surged 2.3 percent, with 102 million shares changing hands, more than three times the daily volume average.  The shares of Bank Rakyat Indonesia (BRI) jumped by nearly 6 percent, with volumes twice the daily average.

In the afternoon, the trading share price of both banks managed to achieve historic levels, before pulling back. The rally also extended to the rupiah, which has been strengthening since July.  

Indonesia'€™s one-month non-deliverable rupiah forward trade offshore rose 0.1 percent to Rp 11,569 per dollar, extending its rally since July 3 to a cumulative 3.7 percent increase.

The day after the election, on July 10, the market continued its rally with the JCI ending at 5,098, up by almost 1.5 percent. Meanwhile the rupiah strengthened to Rp 11,549.  

At the same time the Finance Ministry announced it had raised Rp 15 trillion from its bond auction exceeding its Rp 10 trillion target. Investors submitted bids 2.2 times the amount offered.

Previously, Indonesia raised ¤1 billion bonds from the market, the first time the government raised its euro denominated bonds.

It took advantage of high liquidity in euro area, resulting from the loose monetary policy of the European Central Bank (ECB). Investor enthusiasm was reflected in the amount of bids that were seven times of the amount offered.

The enthusiastic reception of investors to Indonesian stocks and bonds reflected their confidence that the election of Joko '€œJokowi'€ Widodo as president, as predicted by most pollsters, would pave the way for the Indonesian government to push further reform.

The market considers Jokowi business-friendly, especially given his actions during his short spell as the Jakarta governor when he revamped the bureaucracy and pushed for infrastructure development.

The euphoria of the market on Jokowi'€™s presidential win based on quick counts may not last long, however. As Prabowo Subianto, his rival in the presidential election, also claimed victory, there will be uncertainty and tension for the next 11 days until the General Elections Commission (KPU) officially declares the winner.

The market is also aware that the euphoria is largely based on political sentiment from the election of Jokowi who is considered more market friendly compared to Prabowo. Once the political euphoria subsides, the market will face the hard truth of Indonesia'€™s economic fundamentals.

The economy is struggling to restore its growth, to revamp its broken infrastructure, to fend off crushing subsidies and eliminate current-account deficits that have battered its currency for several months.   

Even if the succession goes smoothly and Jokowi becomes the seventh president of Indonesia, the market realizes that formidable challenges will immediately confront him in moving the economy forward.  

The cabinet that he must immediately form will be influenced by his campaign pledges.

A solution for the pressing issue of fuel subsidies cannot wait. During the campaign, Jokowi agreed to cut fuel subsidies gradually but did not elaborate on how he would do it. In the last presidential debate, when the candidates discussed energy, the issue of reducing fuel subsidies was not touched on at all by the two candidates.

It was a glaring absence, since most of the people would have liked to know where each candidate stood on this issue. For Jokowi as president, this will be the most politically risky and tricky issue. The market will watch closely how he deals with this.

The market apparently believes that Jokowi as president will pursue structural reforms to boost economic growth. But the business community will look at how he deals with labor reform.

The minimum wage has been a contentious issue between employers, labor unions and the government. During his campaign, Jokowi boasted that he, as the Jakarta governor, increased the minimum wage by 10 percent to Rp 2.4 million ($209)  a decision that won him support from labor union leaders.

But labor union leaders have stated their determination to press ahead with their demands for further higher wages. Businesses have complained about rising labor costs, because it could undermine their competitiveness in the international market.

Will Jokowi as president continue to accommodate these labor demands?

The economy is not only facing still weak commodity prices and exports. The US Federal Reserve has just announced it will stop its asset purchase program, known as '€œquantitative easing'€ in October 2014, the same time the new Indonesian government takes over.

This will further tighten global liquidity and may trigger capital outflows from Indonesia, weakening the rupiah. The new president must be ready to face these challenges.