Rupiah Falls as Stocks Drop Most Since August on Election

Indonesian stocks had the biggest drop since August and the rupiah weakened by the most in three weeks after Jakarta Governor Joko Widodo’s party received less support than expected in parliamentary elections.

The Jakarta Composite index of shares fell 3.2 percent from April 8 to close at 4,765.729, the steepest decline since Aug. 27. The currency weakened 0.6 percent, the most since March 20, to 11,355 per dollar, prices from local banks show. Local financial markets were closed yesterday for the polls.

Widodo’s Indonesian Democratic Party of Struggle (PDI-P) received 19.6 percent of votes, followed by the Golkar party’s 14.6 percent and Gerindra’s 11.9 percent, based on an unofficial tally by Lingkaran Survei Indonesia before final results due May 9. That falls short of the minimum 25 percent of votes required for parties to nominate a presidential candidate without forming coalitions, and the 37 percent showing for the PDI-P in a Roy Morgan survey.

“While Joko Widodo is still on track to become the next president, his political capital is not as strong as anticipated after PDI-P’s electoral performance,” Alan Richardson, an investment manager at Samsung Asset Management Co. in Hong Kong, said in an e-mail interview. “The market is unlikely to advance further over the next three months.”

Stock Rally

The JCI has surged 12 percent in three months and the rupiah rallied 7.1 percent as foreign investors bought shares at a record pace on speculation 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 Roy Morgan poll released on April 4 showed Widodo, also known as Jokowi, leading with 45 percent of support for the presidential vote on July 7, 30 percentage points more than second-place Prabowo Subianto. Yesterday’s preliminary results mean Widodo will be more reliant on support from other parties to push through reforms.

“Everybody was a bit surprised that Widodo’s PDI-P party didn’t do as well as people expected,” said Leong Sook Mei, the Southeast Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Singapore. “He may actually do better than the party in the presidential elections. Expectations are he will still win.”

PT Astra International, the biggest company in the Jakarta gauge by market value, declined 6.2 percent, the biggest drop since Sept. 24. The 10 biggest decliners in the MSCI Emerging Markets Index are all Indonesian shares.

Forwards, Bonds

Signs of a Jokowi victory have lured overseas investors, including Templeton Emerging Markets Group and Samsung Asset Management. Foreigners have bought a net $2.8 billion of Indonesian shares this year, exchange data show.

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, 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.

In the offshore market, the rupiah’s one-month non-deliverable forwards lost 0.7 percent, extending yesterday’s 0.4 percent drop, to 11,450 per dollar, data compiled by Bloomberg show. The contracts traded 0.8 percent weaker than the onshore spot rate.

The yield on the nation’s 8.375 percent bonds due March 2024 climbed three basis points from April 8 to 7.87 percent, according to the Inter Dealer Market Association.

‘Increased Uncertainty’

Mika Martumpal, the head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta, said the yield would probably rise to 8 percent by July because of the lack of clarity on the outcome of the nation’s elections.

“Increased uncertainty caused the negative market sentiment, seeing as we have no dominant party,” he said. “We could see two rounds of presidential elections in July then September, as the support is quite spread out among the parties.”

One-month implied volatility in the rupiah, a measure of expected moves in the rupiah used to price options, climbed 22 basis points, or 0.22 percentage point, to 10.74 percent.

“There could be a sell-off in Indonesia,” said Allan Conway, who helps oversee $435 billion as head of emerging-market equities at Schroder Investment Management in London. “That might be an opportunity to buy into weakness.”

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