Indonesian Rupiah, Stocks Lead Asian Gains as Tax Amnesty Passed

  • Rupiah rises to two-month high; JCI advances most in a month
  • Tax reprieve to lure $43 billion from offshore: central bank

Indonesia’s rupiah strengthened the most in three weeks and the Jakarta Composite Index led gains among emerging Asian bourses as a tax amnesty bill to boost government revenue was passed.

Lawmakers voted in favor of the bill during a plenary session in Jakarta on Tuesday. Bank Indonesia estimates the tax reprieve will lure as much as 560 trillion rupiah ($43 billion) of undeclared income from overseas. PT Manulife Aset Manajemen Indonesia Chief Investment Officer Alvin Pattisahusiwa said this month the amnesty would boost the bond market and should also support the shares of property developers.

The rupiah closed up 1.2 percent, the biggest gain since June 6, at 13,178 a dollar, according to prices from local banks. The currency reached 13,160 earlier, the strongest level since April 21. The Jakarta Composite Index of shares rose 1 percent in the biggest advance since May 25. Sovereign bonds rallied, pushing the 10-year yield down six basis points to 7.61 percent.

“One of the catalysts for the rupiah is the tax amnesty agreement,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. It will decrease fiscal risk and improve government revenue, he said before the bill was passed.

PT Astra International, which assembles and distributes cars and motorcycles, provided the biggest boost to the JCI, rising 5.3 percent. PT Bank Mandiri advanced 5 percent and PT Gudang Garam, a tobacco company, climbed 4.5 percent. PT Bank Central Asia rose 1.8 percent and PT Bank Rakyat Indonesia increased 1.5 percent.

‘Great Expectations’

Large-cap companies rallied on Tuesday after the amnesty bill was passed, but banks and property companies should be the biggest beneficiaries in the medium to long term, said Indra Mawira, an investment manager at Panin Asset Management.

Individuals who repatriate undeclared assets held abroad will face a levy of 2 percent to 5 percent under the amnesty and as much as 10 percent for those who report assets without bringing them back to Indonesia.

“Banks should be first to benefit from the tax amnesty as fresh funds are repatriated from overseas, likely going toward the larger lenders,” said Angga Aditya Assaf, an equities analyst at PT Trimegah Securities in Jakarta. “But I don’t see the rally today being supported by long-term fundamentals as the risk of bad loans are still looming.”

Bank Indonesia estimates the amnesty, which is aimed at plugging a hole in the government’s budget to fund infrastructure development, will boost 2016 economic growth by 0.3 percentage point to as much as 5.4 percent. Gross domestic product increased 4.79 percent in 2015, the slowest pace in six years.

“There’s great expectations of massive funds being repatriated, which will solve the government funding issue” and improve liquidity in the banking system, said Jeffrosenberg Tan, an associate director at PT Sinarmas Sekuritas in Jakarta. He said he was advising clients to take some profits from the recent rise in property stocks and put the money into banking shares.

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