March 14 (Bloomberg) -- Indonesia’s benchmark stock index entered a bull market, the rupiah reversed losses and bonds rallied as Jakarta Governor Joko Widodo secured his party's nomination as a presidential candidate.
The Jakarta Composite Index surged 3.2 percent to 4,878.64 at the close, extending its advance from an Aug. 27 low to 23 percent. That’s more than the 20 percent level that is the common definition of a bull market. The currency gained 0.3 percent to 11,355 per dollar after falling as much as 0.5 percent earlier, prices from local banks show.
Indonesian Democratic Party of Struggle (PDI-P) Chair Megawati Soekarnoputri gave the popular Widodo the mandate to run for presidency in an election this July, Puan Maharani, head of the party’s parliamentary faction and Megawati’s daughter, said in Jakarta today. Widodo, known locally as Jokowi, topped a January poll by the Indonesian Survey Circle with 35.6 percent support, followed by the Golkar party’s Aburizal Bakrie with 20.1 percent and Gerindra’s Prabowo Subianto on 19.7 percent.
“Investors are flowing into Indonesian equities on the announcement and they are buying liquid stocks with large capitalization like banks,” said Alvin Pattisahusiwa, chief investment officer at PT Manulife Aset Manajemen Indonesia in Jakarta. “Looking at his track record in setting up the healthcare system and speeding up infrastructure development, I expect infrastructure, construction and healthcare companies to benefit from his presidency.”
Financial stocks led the gain in the Jakarta index as PT Bank Mandiri, the country’s largest lender by assets, rose 9.1 percent and PT Bank Rakyat Indonesia jumped 11 percent. A Jokowi administration would probably boost spending on infrastructure and public welfare, according to a report last month from CIMB Group Holdings Bhd.
“This is certainly the most market-friendly scenario in the run-up to the election,” said Mark Capstick, a London-based portfolio manager at BNP Paribas Investment Partners. “In the short term this will be positive for Indonesian assets, although gains may be limited as this was expected by many market participants.”
Indonesian shares have rallied this year after economic growth picked up in the fourth quarter from the previous period and corporate earnings improved on the prospect of increased spending before the elections. Foreign funds pumped $659 million into the nation’s stocks today, the most since May, taking inflows this year to $1.7 billion.
Indonesia will hold legislative polls in April before the presidential vote. President Susilo Bambang Yudhoyono is prohibited from running for a third five-year term.
Jokowi told Bloomberg Television in January that he plans to increase Jakarta’s budget by 75 percent this year by moving tax collection online and boosting oversight to tackle evasion. Since becoming governor in September 2012 he has also restarted construction of a monorail in the capital and pushed through the commencement of a mass rapid transit project, which had been delayed for decades.
Yudhoyono struggled to implement reforms in his final term, failing to win support from within his own coalition to raise subsidized-fuel prices in 2012, before eventually succeeding in June last year. Jokowi’s PDI-P party held a public rally to protest the resulting price increase after it had been approved.
“There’s a shift in sentiment in the market,” said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia. “But it’s a long shot to expect that when one person wins, the whole macro picture will change, which I don’t think will happen.”
The rupiah will advance to 11,300 per dollar by year-end should Jokowi win the July election, Saktiandi Supaat, Singapore-based head of foreign-exchange research at Malayan Banking Bhd., said in February. It would finish the year at 11,700 if he doesn’t win, he said.
In the offshore market, one-month non-deliverable rupiah forwards erased an earlier drop to rise 0.9 percent to 11,333 per dollar, trading 0.2 percent stronger than the onshore spot rate. The contracts reached 11,303 earlier, the strongest level since November.
The yield on the government’s bonds due March 2024 fell five basis points, or 0.05 percentage point, to 7.99 percent, according to prices from the Inter Dealer Market Association.
“The market is responding positively to this news,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We know he’s very popular and we know that he is known as ‘Mr. Fix-it’ but it’s a big move going from mayor to president of a very large country.”