Indonesia ETF Slumps With Rupiah as Jokowi’s Lead Seen Slim

Indonesia’s biggest exchange-traded fund fell from an eight-month high as early legislative vote results showed the opposition party favored by investors failed to win enough support to run for the presidency without forming a coalition.

The iShares MSCI Indonesia ETF dropped 2.2 percent to $28.44 at 4 p.m. in New York, while rupiah one-month non-deliverable forwards declined 1.1 percent to 11,385 per dollar. Joko Widodo’s Indonesian Democratic Party of Struggle had 19.7 percent 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 percent during the past three months, while the rupiah strengthened 8 percent 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 Southeast Asia’s largest economy. The rally sent the Jakarta gauge’s price-to-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 today. “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 percent of seats or 25 percent of the total vote to stand a presidential candidate on their own, or otherwise form a coalition to have a name in the race.

Front-Runner

A Roy Morgan poll of 1,965 people released April 4 found PDI-P would be the only party to meet the presidential threshold, winning 37 percent of seats, up from the almost 17 percent 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 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.

Mobius Buys

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.

Mark Mobius, who oversees about $50 billion as the executive chairman of Templeton Emerging Markets, said in an interview in Hong Kong on April 7 that he’s been adding to Indonesian holdings, favoring banks and some consumer companies. Samsung Asset Management, whose Southeast Asia fund topped 96 percent of peers in the past five years, said stocks such as PT Bank Mandiri and builder PT Adhi Karya would benefit from a Jokowi victory.

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 Asset Management Indonesia.

“The response should still be quite positive even if we won’t see an all-out euphoria that was previously expected,” said Nazula, who helps oversee about $3.8 billion in Jakarta.

High Valuations

Survey company LSI has monitors at local polling stations where the count is ongoing, with final results not due from the General Elections Commission, or KPU, until around May 9.

Golkar, the party of tycoon Aburizal Bakrie, 67, had 14.6 percent of the vote and Gerindra, whose candidate for president is former general Prabowo Subianto, 62, had 11.8 percent, according to LSI. The Democratic Party of President Susilo Bambang Yudhoyono stood at 9.7 percent, it said.

The Jakarta gauge trades at 22 times reported earnings, the highest level since December 2009, according to data compiled by Bloomberg. That compares with a multiple of 12 for the MSCI Emerging Markets Index.

Samuel Le Cornu, who helps oversee about $1 billion at Macquarie Investment Management, said he has an underweight position in Indonesian shares after valuations increased.

“Looking at Indonesia as a whole, we don’t think it is cheap,” said Le Cornu, whose Macquarie Asia New Stars Fund had an annualized return of 29.1 percent during the past five years, outperforming 99 percent of peers tracked by Bloomberg. “The rally at the moment is all sentiment driven, not fundamental buyers.”

To contact the reporters on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net; Yudith Ho in Jakarta at yho35@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Tal Barak Harif

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