BackIndonesia ETF drops with rupiah as Jokowi Party’s lead seen slim
The iShares MSCI Indonesia ETF dropped 2.3% to $28.40 in New York
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Jakarta/Singapore: Indonesia’s biggest exchange-traded fund (ETF) fell from an eight-month high as early legislative vote results showed the opposition party favoured by investors failed to win enough support to run for the presidency without forming a coalition.
The iShares MSCI Indonesia ETF dropped 2.3% to $28.40 at 10.12am in New York, while rupiah one-month non-deliverable forwards declined 1.2% to 11,393 per dollar. With 90% of the results for the parliamentary elections counted, Joko Widodo’s Indonesian Democratic Party of Struggle had 19.8% of the votes, below the threshold needed to stand a presidential candidate on its own, based on an estimate by Lingkaran Survei Indonesia.
The benchmark Jakarta Composite Index has surged 17% during the past three months, the best performance worldwide, while the rupiah strengthened 8% as foreign investors bought shares at a record pace on speculation Jakarta governor Widodo will win the presidential election in July and boost investment in South-East Asia’s largest economy. The rally sent the Jakarta gauge’s price-earnings ratio to the highest level since 2009.
“The market will be disappointed," Harry Su, the head of research at PT Bahana Securities, said by phone from Jakarta on Wednesday. “We would recommend clients to take profit."
Puan Maharani, head of the central executive board of Widodo’s opposition party, known as PDI-P, said in a television broadcast that early results showed it had won. Still, parties need to secure 20% of seats or 25% of the total vote to stand a presidential candidate on their own, or otherwise form a coalition to have a name in the race.
A Roy Morgan poll of 1,965 people released 4 April found the PDI-P would be the only party to meet the presidential threshold, winning 37% of seats, up from the nearly 17% it now holds. Widodo leads opinion polls for president. The 52-year-old, known by his nickname Jokowi, has made infrastructure development and streamlining tax collection centrepieces 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% 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 three million people, aimed at the capital’s poor.
Signs of a Jokowi victory have lured overseas investors, including Templeton Emerging Markets Group and Samsung Asset Management. Foreigners bought a net $2.8 billion of Indonesian shares during the past three months, the most for that length of time since Bloomberg began compiling the data in 1998.
Investors may stay bullish on Indonesia as long as Jokowi’s party secures enough votes to nominate a candidate without forming a coalition of so many parties that it impedes reform efforts, according to Ezra Nazula, the head of fixed-income at PT Manulife Aset Manajemen Indonesia.
Survey company LSI has monitors at local polling stations where the count is ongoing, with final results not due until around 9 May. Bloomberg
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