Traders’ Guide to Navigating Indonesia’s 2025 Budget Plan

(Bloomberg) -- Indonesia’s budget may benefit consumer, banking and construction shares as President Joko Widodo’s successor plans to significantly ramp up spending to boost economic growth.

Jokowi, as the country’s leader is known, later on Friday will lay out his policy priorities for the Southeast Asian nation, home to the region’s largest equity market by capitalization. The fiscal plans will set the blueprint for President-elect Prabowo Subianto, who takes office in October.

The benchmark Jakarta Stock Exchange Composite Index has climbed more than 45% since Jokowi became president about a decade ago. The gauge closed at an all-time high on Wednesday, overtaking a previous peak from mid-March that was reached as Prabowo emerged as the likely winner of the Feb. 14 election.

“We expect the budget expenditure focus will likely maintain the status quo on Jokowi-era programs and incorporate Prabowo’s election campaign promises,” said Barnabas Gan, acting group chief economist at RHB Bank Bhd.

Here’s what to watch for in the 2025 budget:

Materials

Jokowi’s plans to move the nation’s capital to Nusantara may drive earnings for construction companies such as state builder PT PP Persero and cement makers including PT Semen Indonesia and PT Indocement Tunggal Prakarsa. Prabowo has publicly committed to continuing with the project.

Read: Indonesia’s New $29 Billion Capital Is Plagued by Delays

He’s also pledged to maintain Indonesia’s minerals downstreaming policy focusing on nickel, copper processing and battery manufacturing. Any related budget details should support miners including Aneka Tambang and electric-battery industry developers like PT Astra International.

Health Care

Health-care funding is poised to increase in a bid to boost the “effectiveness of universal health care and improve the quality of services, with a focus on the healthy development of children,” PT Macquarie Sekuritas Indonesia analysts including Ari Jahja and Akshay Sugandi wrote in a note. Their preferred sector picks on budget expectations are PT Mitra Keluarga Karyasehat and PT Medikaloka Hermina.

Read: Jokowi’s Last Indonesia Budget May Test Big-Ticket Prabowo Plans

Consumer and Banking Shares

The expansionary budget could make consumption and banking shares more attractive, and is positive for PT Bank Central Asia and other lenders over the long term, according to Sat Duhra, a fund manager at Janus Henderson Group Plc. Nomura Holdings Inc. also likes Indonesian consumer stocks on their growth prospects.

Food producers such as PT Indofood CBP Sukses Makmur and PT Cisarua Mountain Dairy may benefit from the government’s proposal to allocate 71 trillion rupiah ($4.5 billion) for a free school lunch program in 2025. The proposal was one of Prabowo’s key campaign pledges and is likely to be expanded in the future.

Read: Prabowo Seeks Models to Have $1 Lunch Program Unlock 8% Growth

Currency

While Indonesia’s benchmark bonds have more than recovered from a selloff in June sparked by news that Prabowo was mulling an increase in spending, the episode served as a reminder of just how closely watched financial policy decisions are for the country, which had to take an International Monetary Fund bailout in the 1990s.

Officials have stressed that Prabowo is committed to prudent finances, and traders appear reassured. Foreign investors have plowed a net $930 million into rupiah government bonds this month, helping the currency rally 3.6% against the dollar. It’s Asia’s top performer in August.

Jokowi’s budget speech is unlikely to affect sentiment as “the focus is on the incoming government’s plans,” said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore. “Global factors are likely to be more impactful for the time being, in particular whether or not the market positioning for substantial Fed cuts is justified.”

--With assistance from Claire Jiao.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.