July 9 (Bloomberg) -- Indonesian President Susilo Bambang Yudhoyono’s election victory helped Asia’s best-performing bond, currency and stock markets extend this year’s rally on expectations it will pave the way for more pro-growth policies.

Yudhoyono won 61 percent of votes in yesterday’s election, according to a sampling of ballots by the Indonesia Survey Institute, enough to hand him a second five-year term. He promised voters to eradicate corruption and boost spending to help achieve 7 percent annual economic growth. The rupiah gained the most in two weeks while the Jakarta Composite Index rose as much as 1.6 percent, and was little changed at the close.

“A lot of regional and global funds are looking for political stability,” Ho Yin Pong, a Hong Kong-based portfolio manager at RCM Asia Pacific Ltd., part of a group that manages $75 billion globally, said in an interview. “This will provide evidence for them to get comfortable and the growth prospects in the next three to five years are very, very bright.”

The Jakarta Composite climbed 54 percent this year, the fourth-best performer among the 88 indexes tracked by Bloomberg globally and the biggest gain in Asia in dollar terms. The rupiah is up 9.6 percent against the dollar, while local- currency bonds returned 12 percent, the best performer among 10 local-currency Asian debt indexes compiled by HSBC Holdings Plc.

The benchmark stock index rose 0.03 percent to 2,083.97 at the close. The rupiah added as much as 1.1 percent, before trading at 10,153 as of 4:19 p.m. in Jakarta, compared with 10,255 on July 7, according to data compiled by Bloomberg.

The yield on the 11.25 percent note due May 2014 fell 17 basis points to 9.31 percent, a four-week low, according to closing prices at the Inter Dealer Market Association.

Growth

Indonesia has avoided the recessions that plagued its neighbors, growing 4.4 percent in the first quarter from a year earlier. The $433 billion economy may expand as much as 4 percent this year, the fastest pace in Asia after India and China, the International Monetary Fund estimates. Inflation fell to a nine-year low in June, allowing the central bank to reduce its benchmark interest rate for an eighth straight month.

Indonesia’s growth may exceed 6 percent after the election because Yudhoyono has a “strong mandate” to implement his policies, Milan Zavadjil, head of the IMF’s Indonesia office, said in an interview in Jakarta. Yudhoyono had unveiled stimulus measures worth 71.3 trillion rupiah ($7 billion) and said he will cut fuel, food and electricity subsidies to fund infrastructure projects.

‘Very Stable’

“The political environment is very stable and they have a very good economic team running the country,” said Kenneth Akintewe, a portfolio manager in Singapore, who helps oversee $138 billion at Aberdeen Asset Management Plc. “We’re positive on Indonesian bonds over the longer term.”

Indonesia’s biggest fund is also predicting that bonds and the rupiah will extend their gains after the election. The currency traded at 10,225 per dollar on July 7. Markets were closed yesterday.

“If the political situation continues to improve, we can expect more bond sales in the second half and that will make the market more attractive,” said Elvyn G. Masassya, investment director at Jakarta-based PT Jaminan Sosial Tenaga Kerja, the state-pension fund that manages 68 trillion rupiah ($6.6 billion). “The rupiah may catch up on gains.”

Patrick Bennett, a Hong Kong-based currency strategist at Societe Generale SA, said in a report yesterday that the election’s outcome was “already expected and equally well- priced.”

‘Rallied Too Early’

The Jakarta index’s surge ahead of the election suggests equities may be poised to fall, said Kenny Soejatman, director of equity investment at Jakarta-based PT Mandiri Manajemen Investasi, which manages the equivalent of $976 million in assets.

“Stock prices may have rallied too early in anticipation” of Yudhoyono’s victory, Soejatman said in an interview in Jakarta. “The likelihood of a further rally may be limited but the likelihood of a correction is still there.”

Indonesia’s 176 million eligible voters cast ballots yesterday at 450,000 polling stations across a country of 17,000 islands that spans a distance greater than that between Los Angeles and New York. The official tally won’t be available for at least 17 days, according to the election commission.

Pong’s Allianz RCM Indonesia Fund has risen 87 percent this year, the best performance among 36 equity funds tracking the country’s stocks, according to data compiled by Bloomberg. The fund favors commodities and industrial companies, and may reduce its “underweight” position in telecommunications companies that have underperformed this year, Pong said.

“Investors had gotten a little cautious going into the polls,” Pong said. “So while the market won’t go berserk, it’s still going to have a good impact.”

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

Last Updated: July 9, 2009 06:02 EDT