Indonesian equities gained, with the benchmark index posting the steepest advance in nearly two years, as the government announced the first “appetizer” of a stimulus package to spur sagging growth. The rupiah strengthened for the first time in nine days.
The Jakarta Composite Index rose 4.6 percent to 4,430.63 at the close, the most since Sept. 19, 2013. PT Unilever Indonesia climbed 6.9 percent to a three-week high, the biggest boost to the gauge. PT Bank Central Asia added 6.3 percent and PT Bank Rakyat Indonesia advanced 7.7 percent. The rupiah gained 1 percent, the most since March 19.
The government announced tax holidays of between 5 and 15 years to new companies across a wide range of industries investing at least 1 trillion rupiah ($71 million), Finance Minister Bambang Brodjonegoro said. The Jakarta index sank into a bear market last week, while the rupiah weakened to a 17-year low, amid concerns President Joko Widodo is struggling to deliver on plans to boost an economy growing at the slowest pace in more than five years.
“We have to see the details, as it’s too early to tell how this might affect the market,” Alvin Pattisahusiwa, who helps manage 54.3 trillion rupiah ($3.9 billion) as chief investment officer at PT Manulife Aset Manajemen Indonesia, said from Jakarta. “But things like this give us some comfort that the government is showing its concern for capital markets.”
Chemicals, machinery, maritime transport and upstream oil and gas companies will get tax cuts of between 10 percent and 100 percent, Brodjonegoro told reporters in Jakarta on Thursday. The announcement is a prelude to a more comprehensive stimulus package to boost growth, exports and purchasing power, he said.
Indonesian regulators have introduced a number of measures to shore up falling stock prices and a weakening currency, including reducing the limit for a daily drop in share prices, as well as encouraging institutional investors to buy stocks and state-owned companies to buy back their shares.
Indonesia’s gross domestic product grew 4.67 percent in the second quarter, the weakest since September 2009, while corporate earnings dropped at 88 percent of companies tracked by Bloomberg in the quarter ended June 30.
Foreign investors sold a net of $1.5 billion Indonesian stocks in the past 12 months, the most among Asian markets tracked by Bloomberg after Thailand. The rupiah weakened beyond 14,000 per dollar for the first time since 1998 this week.
“The selling appears exhausted for a few days, but I doubt the JCI can break above 5,000 without fundamental support,” said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management Ltd. “I don’t see a growth recovery this year so investors need to be prepared for high volatility, low returns over the next few months.”