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JPMorgan reverses bearish call that angered Jakarta
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Indonesia recently terminated all of its deals with the JPMorgan Chase Bank, NA, a subsidiary of New York-based JPMorgan Chase, after it published a research note that downgraded the country two notches from the “overweight” to “underweight” position. (Bloomberg/Bloomberg)
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PMorgan Chase & Co. upgraded its assessment of the Indonesian stock market, reversing an earlier bearish call that prompted Jakarta to stop doing business with the US bank.
The bank’s analysts raised their "tactical" view of Indonesian equities one level to “neutral” in a report dated Monday, saying volatility in emerging-market bonds following Donald Trump’s US election victory in November should now subside.
The upgrade came two weeks after Indonesia’s government cut business ties with JPMorgan, citing a two-notch equities downgrade by the bank in November.
(Read also: Senior economic minister supports decision on JP Morgan)
“Our tactical downgrade two months ago was driven by the risk of Indonesia underperforming the Asia Pacific ex Japan and EM indices as investors de-risked," analysts led by Adrian Mowat said. "Redemption and bond volatility risks have now played out, in our view.”
Indonesia welcomed JPMorgan’s new assessment. The neutral recommendation is more in line with fundamentals, Coordinating Minister for Economic Affairs Darmin Nasution told reporters in Jakarta on Monday. The finance ministry had earlier said it would stop using JPMorgan as a primary dealer and an underwriter for sovereign bonds.
With its move to punish JPMorgan, Indonesia joined the ranks of emerging-market countries retaliating against analysts which publish negative research. Turkey’s banking regulator issued an industry wide warning to avoid negative reports and in 2014, then Brazil President Dilma Rousseff chastised an analyst for suggesting her election would hurt the economy.
JPMorgan’s research "is independent and anything published is a result of extensive and objective analysis," the bank said in an e-mail. "Our research views and recommendations on Indonesia are no different."
Foreign investors sold a net $2.8 billion of Indonesian stocks and bonds last quarter as emerging-market assets retreated following Trump’s victory. That drove the rupiah lower, forcing policy makers to intervene to stabilize the currency. Indonesian stocks have under-performed wider emerging-market indexes since JPMorgan issued its downgrade on Nov. 13. (bbn)
