Indonesian Stocks, Rupiah Slump as Prabowo Contests Vote

Indonesia’s stocks retreated from a 13-month high and the rupiah weakened as Prabowo Subianto rejected a vote count that subsequently showed he lost the nation’s presidential election to Joko Widodo.

The Jakarta Composite Index fell as much as 2.2 percent, before closing 0.9 percent lower at 5,083.52, while the rupiah dropped 0.3 percent to 11,606 per dollar. Prabowo said in a televised speech today the July 9 election was undemocratic and that he was pulling his witnesses from the counting process.

Widodo, known as Jokowi, won 53.15 percent of support at the July 9 presidential election, followed by 46.85 percent for Prabowo, according to the election commission. Just hours after the final results were announced, Prabowo said he will contest the vote in the nation’s highest court. The move could create a month of further uncertainty for investors. Jokowi pledged to cut red tape and attract investment, while Prabowo said he would seek to renegotiate contracts with foreign companies.

“Jokowi’s the one seen as the favored pair of hands for the economy,” said Gareth Leather, Asia economist at Capital Economics Ltd. in London. “The rupiah in the short-term should be under some downward pressure at least until the end of August when the election uncertainty will be resolved.”

The iShares MSCI Indonesia ETF fell 0.3 percent to $29.37 in New York after Indonesian markets closed, erasing a gain of as much as 1.3 percent as Prabowo said he would challenge the vote. One-month non-deliverable forwards on the rupiah fell 0.1 percent to 11,574 per dollar after increasing as much as 0.5 percent.

The election’s organizer, known as KPU, had been unfair, lacked transparency and violated many of its own rules, Prabowo said today. He has not withdrawn as a presidential candidate, his brother Hashim Djojohadikusumo said by mobile-phone message.

Vote Validity

Prabowo’s team has said it will file a police report against KPU for proceeding with the count after it called on July 20 for a delay and questioned the validity of the vote.

“The market had some hope for a concession of defeat from Prabowo’s camp,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “With the denouncement of the results even before they are officially announced, there’s now practically no hope of that panning out.”

PT Bank Rakyat Indonesia dropped 2.4 percent, the biggest drag to the Jakarta index. PT Telekomunikasi Indonesia fell 1.7 percent and PT Bank Mandiri retreated 1.6 percent.

‘Further Uncertainties’

“Jokowi’s winning margin was larger than expected and the official result is unlikely to change,” Barclays analysts led by Wai Ho Leong wrote in a note today, forecasting the rupiah to rally toward 11,254 “in the coming weeks.”

The government’s 8.375 percent bonds due March 2024 ended a five-day advance. The yield climbed five basis points, or 0.05 percentage point, to 8.06 percent, according to the Inter Dealer Market Association.

“This has created further uncertainties for investors, but I expect the negative reaction in the market to be short term,” Joshua Tanja, head of research at PT UBS Securities Indonesia, said by telephone today. “I don’t think the outcome of the election will be affected by this.”

The cost to insure the nation’s debt against non-payment using five-year credit-default swaps dropped one basis point to 149 basis points after falling to 146, the lowest level since July 10, according to data provider CMA.

Fund Inflows

Some 56 percent of investors said they would sell Indonesian assets and 13 percent said they would buy if Prabowo won, Deutsche Bank AG said in a June 9 report based on a tally of 70 respondents. A victory by Jokowi would lead 74 percent to buy, while 6 percent said they would sell.

Jokowi has promised to build 2,000 kilometers (1,244 miles) of new roads and 10 seaports. The move is aimed at boosting the annual pace of economic growth to 7 percent from an estimated 5.4 percent this year.

Foreign investors pumped about $4.9 billion into local shares so far this year amid speculation that Jokowi would win, while the iShares MSCI Indonesia ETF lured a net $9.9 million during the past two weeks.

“If Jokowi wins, there would be a relief rally as it removes the overhang that’s needed by Indonesia market,” said Christopher Wong, a senior investment manager in Singapore at Aberdeen Asset Management Plc. “The market will rally for few days and then wait for Jokowi’s plans. And then the next catalyst would be whether he can execute.”

Before it's here, it's on the Bloomberg Terminal.