Indonesian Stocks Drop as Rupiah Extends Losing Streak

Indonesian stocks closed at a three-month low and the rupiah completed the longest stretch of weekly losses since 2010 amid growing concern that President-elect Joko Widodo will struggle to implement reforms.

The Jakarta Composite Index dropped 1 percent to close at 4,949.36, paced by financial companies including PT Bank Rakyat Indonesia. The rupiah fell 0.2 percent today and 1.3 percent this week to 12,177 per dollar, capping a seventh weekly drop, prices from local banks show. Government bonds fell for a fourth week, with the yield on the notes due March 2024 jumping 25 basis points to 8.49 percent, according to the Inter Dealer Market Association.

A coalition of parties backing defeated presidential contender Prabowo Subianto, which control more than half of the legislature, has confounded expectations by passing a law scrapping direct local elections and choosing a speaker of the house from their own ranks. International investors sold a net $273 million of Indonesian shares this week through yesterday.

“These bumps in the road are causing concern that the new administration will have little room to implement reforms,” said Nurul Eti Nurbaeti, head of treasury research at PT Bank Negara Indonesia in Jakarta. “We expect the trade balance to improve in the months ahead followed by the current-account deficit, but, for now, politics are at the forefront of people’s minds.”

The nation recorded a $318 million trade deficit in August, according to official data released Oct. 1, versus the median estimate in a Bloomberg survey for a $130 million surplus.

One-month implied volatility, a measure of expected swings in the exchange-rate used to price options, surged 1.16 percentage points this week, the most among 24 emerging-market currencies tracked by Bloomberg, to 11.48 percent. The measure fell 21 basis points today. The central bank set a fixing used to settle the rupiah forwards at 12,144 per dollar today, from 12,007 on Sept. 26.

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