Indonesia Cuts JPMorgan Ties After Bank Downgrades EquitiesBy , , and
JPMorgan downgraded equities to underweight after Trump win
Bank says it’s trying to resolve matter with finance ministry
Indonesia’s government said it terminated all business partnerships with JPMorgan Chase & Co. after the U.S. bank downgraded its assessment of equities in Southeast Asia’s largest economy following Donald Trump’s election win.
The finance ministry will stop using JPMorgan as a primary dealer and as an underwriter of its sovereign bonds, Robert Pakpahan, the ministry’s director-general for budget financing and risk management told reporters in Jakarta on Tuesday. He said a November research report issued by the bank was not "accurate or credible."
JPMorgan downgraded Indonesia’s equity market by two notches to underweight from overweight in a Nov. 13 report as a “tactical response” to the Trump election win. The bank also downgraded Brazil, while noting that both countries may provide a "better buying opportunity” later.
JPMorgan’s business in Indonesia continues to operate as normal, the bank said in an e-mailed statement on Tuesday. “The impact on our clients is minimal and we continue to work with the Ministry of Finance to resolve the matter,” it said.
The biggest U.S. bank was part of a underwriting syndicate when Indonesia sold 3 billion euros ($3.1 billion) of bonds in June. The lender wasn’t listed as a member of syndicates for two more recent offerings denominated in yen and U.S. dollars, according to data compiled by Bloomberg.
Any tax payments by Indonesian companies which were previously routed through JPMorgan will now be passed to the government via other banks, according to Bank Indonesia Governor Agus Martowardojo.
The government’s action illustrates some of the difficulties in producing balanced research reports, said Alan Richardson, an investment manager at Samsung Asset Management in Hong Kong. "I don’t think it will affect investor interest in Indonesia but it does reflect the difficulty of sell-side analysts to provide independent and objective opinions to their clients without upsetting the government officials and regulators," Richardson said.
Foreign investors sold a net $2.8 billion of Indonesian stocks and bonds last quarter as investors dumped emerging-market assets following Trump’s victory. That drove the rupiah lower, forcing policy makers to intervene to stabilize the currency.
Banks should take responsibility for economic reports that "could influence fundamentals and psychology," Finance Minister Sri Mulyani Indrawati said Tuesday, when asked to comment on the termination of the JPMorgan relationship.
JPMorgan provides investment and commercial banking services to the public and private sectors in Indonesia, according to the bank’s website. It obtained an Indonesian banking license in 1968 in the name of Chase Manhattan, and opened a branch in Jakarta, followed by a representative office in 1978.
— With assistance by Ambereen Choudhury, Ian C Sayson, and Eko Listiyorini