Jakarta Bull Rally Seen Extending as Jokowi Lures Investors


gsr-2487Indonesian stocks will extend their bull-market rally as speculation increases that Joko Widodo will win this year’s presidential election and boost investment, said some of the country’s largest investors and brokerages.

The Jakarta Composite Index will rise a further 7 percent to a record closing level of 5,225 this year after the Indonesian Democratic Party of Struggle nominated the Jakarta governor as its presidential candidate, according to PT CIMB Securities Indonesia, the second-largest brokerage. Construction and health-care shares may benefit most on anticipation Widodo would lift spending on welfare and infrastructure, said PT Manulife Aset Manajemen Indonesia, the No. 2 mutual fund manager.

Widodo’s nomination sparked the Jakarta index’s biggest gain since September and spurred foreign investors to plow more money into the nation’s stock market than at any other time in 10 months. Shares in Southeast Asia’s biggest economy have bucked a 6.4 percent decline in the MSCI Emerging Markets Index this year amid accelerating economic growth, a shrinking current-account deficit and better-than-estimated earnings.

“There are hopes around the infrastructure agenda and whether he can push through much-needed spending on that,” James Thom, a Singapore-based money manager at Aberdeen Asset Management Plc, which oversees about $320 billion worldwide, said by phone today. “There is a whole range of sectors that can potentially benefit.”

Health Plan

Widodo has made infrastructure development and streamlining tax collection centerpieces of his governance, boosting his support in the business community.

Since becoming governor in September 2012, he has begun construction of a monorail in the capital and pushed through the commencement of a metro train system, which had been delayed for years. Widodo said in January that he plans to increase Jakarta’s budget by 75 percent this year by moving tax collection online and raising oversight to tackle evasion. He is using the administration’s cash for a free health plan for more than 3 million people, aimed at the capital’s poor.

Even before his candidacy was announced last week, Widodo, known as Jokowi, topped a January poll of likely presidential candidates by the Indonesian Survey Circle, ahead of the Golkar party’s Aburizal Bakrie and Gerindra’s Prabowo Subianto. Indonesia will hold legislative polls in April before the presidential vote three months later.

gsr-487Rally Risks

“The market considers him as the agent who can effectively build the infrastructure,” Erwan Teguh, an analyst at PT CIMB Securities, said by phone from Jakarta on March 14. “It would lead to immediate and tangible results that can be felt in the stock market.”

The rally may be short-lived if the economy loses momentum, said John Rachmat, the head of research at PT Mandiri Sekuritas. Indonesia’s economic expansion may slow this year to between 5.5 percent and 5.8 percent, the least since 2009, as the government reins in the current-account deficit, Finance Minister Chatib Basri said on Feb. 23.

China, Indonesia’s largest trading partner, reported the lowest industrial output for the January-February period since 2009 and the weakest retail sales growth in a decade.

“Purely relying on a political sweetener would not be enough to support the index to the bull-case scenario,” Rachmat said in a phone interview on March 14 from Jakarta.

Bull Market

The Jakarta Composite Index (JCI) surged 3.2 percent on March 14 to 4,878.64, extending the benchmark gauge’s increase from its August low to 23 percent. Teguh’s year-end target for the index would surpass the all-time closing high of 5,214.98 set in May. The measure gained 0.2 percent to the highest level since June at the midday break in Jakarta. It’s valued at about 15 times estimated earnings for the next 12 months, versus 10 times for the MSCI emerging markets index.

Cement producers PT Semen Indonesia (SMGR) and PT Indocement Tunggal Prakarsa (INTP) rose more than 3 percent and were the biggest contributors to today’s gain. Indonesia’s rupiah strengthened as much as 0.9 percent to 11,254 per dollar, the strongest level since Oct. 31, prices from local banks show.

The Jakarta index gained 14 percent this year through March 14, led by a 30 percent gain in the Jakarta Construction, Property, and Real Estate Index. PT Adhi Karya (ADHI), a Jakarta-based builder, has surged 102 percent. PT Kalbe Farma (KLBF), the country’s largest drugmaker by market value, climbed 2.1 percent on March 14, extending this year’s advance to 18 percent.

Market Bonus

“Looking at his track record in setting up the health-care system and speeding up infrastructure development, I expect the infrastructure, construction and health-care companies to benefit from his presidency,” said Alvin Pattisahusiwa, who oversees about $3.3 billion as the chief investment officer at PT Manulife Aset Manajemen.

About 72 percent of companies in the Jakarta Composite Index that posted fourth-quarter results through February surpassed analyst estimates, the highest proportion at that stage of a reporting season since 2007, data compiled by Bloomberg show.

Indonesia’s economy expanded 5.72 percent from a year earlier in the three months ended Dec. 31, compared with 5.63 percent the previous quarter. The country’s current-account deficit is expected to narrow to 2.5 percent this year, from about 3.3 percent last year, according to the central bank.

“A Jokowi announcement is a bonus for the market as otherwise the political uncertainty would be very high,” Marsangap Tamba, the Jakarta-based head of investment at PT Sun Life Financial Indonesia, which manages about 7 trillion rupiah ($622 million), said in a March 14 interview. Tamba said the Jakarta index may rise above its previous record this month and end the year at 5,300.