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Stock market to stay bullish after election
The upward trend in share prices and the rupiah’s exchange rate will continue this week as investor confidence grows after unofficial election results showed that incumbent Joko “Jokowi” Widodo had received the people’s mandate to continue to lead the country for the next five years
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span>The upward trend in share prices and the rupiah’s exchange rate will continue this week as investor confidence grows after unofficial election results showed that incumbent Joko “Jokowi” Widodo had received the people’s mandate to continue to lead the country for the next five years.
Share prices and the rupiah rallied on Thursday, the first trading day after the general elections, as investors poured more money into the stock market as they were confident that the reelection of Jokowi would bring more certainty to the economy.
On Thursday morning, the Jakarta Composite Index (JCI) rose to its highest level of 6,636.33, while the rupiah strengthened to Rp 14,000 per US dollar. However, the index slightly declined in the evening, closing the day at 6,507.22, while the rupiah declined slightly to end the day at Rp 14,044.5 per US dollar on the spot market.
The unofficial results that showed Jokowi had defeated contender Prabowo Subianto by a comfortable margin led to the surge in share prices. However, the decline in share prices in regional markets and Prabowo’s claim that he also led the polls halted the price rallies. Prabowo told a news conference at his home in Jakarta that he won by 62 percent over the incumbent, based on the votes his team had recapitulated.
Binaartha Parama Sekuritas analyst Nafan Aji said the euphoria from the election did not last long as the decline in share prices in the global market affected evening trading.
“The slump in share prices in regional markets halted the price rallies in Jakarta during evening trading,” he told The Jakarta Post.
Major share price indexes in Asia, such as Japan’s Nikkei, Hong Kong’s Hang Seng, China’s Shanghai Composite Index and Singapore’s Straits Times Index, were in the red on Thursday despite reports of the higher-than-expected growth of the Chinese economy.
Meanwhile, Bank Permata economist Josua Pardede predicted the euphoria over the possible reelection of Jokowi was the main factor that caused the rise in the rupiah against the US dollar early on Thursday.
He said after the International Monetary Fund announced it was lowering its global growth expectation by 0.2 percent this year, safe haven assets like the Japanese yen had been rallying against the dollar. Such a situation will continue, he said, and this would encourage investors to avert risks from risky instruments like the Indonesian rupiah.
Josua predicted the unofficial election results would still have a positive impact on the rupiah on Monday. The rupiah is expected to fluctuate between 14,000 and Rp 14,100 per US dollar.
Meanwhile, Nafan expected capital inflows to continue on Monday and further push up share prices on the local market. The JCI is expected to stay within the 6,394 to 6,692 range.
In a statement, Morgan Stanley Research said the market’s attention following the election will likely shift to policy implementation, while also suggesting that the government focus on “structural reform 2.0” to unlock potential for higher growth.
International rating agencies also said they expected the economic and structural reform agenda to continue during Jokowi’s second term.
Moody’s Investor Service senior analyst Anushka Shah said the latest development “would point to an environment of policy continuity” as she expected the incumbent would prioritize infrastructure and human capital development as well as further reduction of red tape.
Such moves would bring greater stability and support for the economy, she added.
“This policy mix has been supportive for investment and broader stability. A stable growth environment will in turn foster financial market stability, which is crucial, given the high share of foreign ownership in the bond market,” Shah said in a recently released statement.
Fitch Ratings director Thomas Rookmaaker said Jokowi’s successful bid for a second presidential term “broadly suggests a continuation of current economic policies, with a focus on macro stability, infrastructure spending and efforts to increase the government’s tax revenue ratio”.
He particularly welcomed the focus on macro stability, which underpinned Fitch’s rating upgrade of Indonesia to investment-grade BBB status in December 2017.
