Indonesian Stocks Drop Most Since April on Widodo Reform Hurdles

Indonesia’s benchmark stock index dropped the most in almost six months and the rupiah weakened on concern a new house speaker will hinder President-elect Joko Widodo’s plans to boost growth.

The Jakarta Composite Index closed down 2.7 percent to 5,000.809, the biggest decline since April 10. The rupiah fell 0.2 percent to 12,150 per dollar, taking its drop this week to 1 percent, according to prices from local banks.

Setya Novanto, a lawmaker from the Golkar party, which backed losing candidate Prabowo Subianto in the presidential election in July, was chosen as speaker of the house in a plenary meeting early today. Parties opposed to Widodo, known as Jokowi, that currently control more than half of the seats in parliament may make it more difficult for him to push through policy proposals that have contributed to a 17 percent gain in the benchmark stock index this year.

“Investors had high expectations that there would be a smooth cruise to prosperity for Indonesia,” said Sebastian Tobing, the head of research at PT Trimegah Securities in Jakarta. “It is possible that Jokowi’s government can still be efficient regardless of what the parliament is doing. But for now I think the market is becoming more jittery.”

Prabowo’s coalition of seven parties has confounded expectations by holding together after his election defeat, supported by outgoing President Susilo Bambang Yudhoyono’s Democrat party. With a majority in parliament, his lawmakers have passed rules that scrap direct regional elections and limit the ability of the anti-graft body to pursue legislators.

More Symbolic

The speaker and his deputies can influence the progress of bills through parliament before they become law. Jokowi takes office Oct. 20.

PT Bank Central Asia, the country’s largest lender by market capitalization, fell 4.8 percent. PT Astra International dropped 5.7 percent and PT Bank Rakyat Indonesia declined 3.7 percent. The Jakarta equity gauge has lost 4.7 percent since closing at record high on Sept. 8.

The benchmark index may drop to 4,800 in October as the parliament passes “regressive, market-unfriendly” regulations, John Rachmat, the head of equities research at PT Mandiri Sekuritas, said Sept. 30.

Foreign investors sold a net $616 million of Indonesian stocks last month, the biggest outflow since June 2013, exchange data show. The Jakarta index was valued at 14.3 times 12-month estimated earnings, or 35 percent more than the MSCI Emerging Markets Index, the biggest premium since May.

Government bonds were little changed, with the yield on the 8.375 percent notes due March 2024 at 8.47 percent, according to the Inter Dealer Market Association.

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