Markets welcome likely Prabowo victory in Indonesian elections

Singapore — Investors cheered a clear-cut victory for defence minister Prabowo Subianto in unofficial counts in Indonesia’s presidential race, with stocks clocking their sharpest rise in two months.

The Jakarta Composite index ended 1.3% higher after earlier hitting a more than one-month peak, not far from the record high of 7,403.578 points hit in January.

Prabowo declared victory after unofficial “quick counts” by independent pollsters — which have proven to be accurate in past elections — showed the former special forces commander clinching about 58% of votes in Wednesday’s election.

The removal of political uncertainty aided sentiment, analysts said, as Prabowo’s comfortable lead squelched the likelihood of a second round election, which would have been necessary if no candidate had an outright majority.

Banks, nickel miners and processors, as well as infrastructure-related companies led gains on the bourse.

Prabowo has promised to follow predecessor Joko Widodo’s policies of massive infrastructure spending, which includes the construction of Indonesia’s new capital, and turning the country into an Asian hub for manufacturing electric vehicles.

Among the top performers on Thursday, Bank Mandiri and Bank Rakyat Indonesia rose more than 2% each.

Cement producer Indocement Tunggal Prakarsa jumped  more than 4%, while nickel producer Merdeka Battery Materials surged 7%.

“Amid expectations of stronger economic growth and foreign fund inflows, we see that the big-cap stocks will potentially benefit from the anticipated domestic and foreign fund inflows,” said analysts at BRI Danareksa Sekuritas in a note.

“The expectation of higher growth may also benefit consumer discretionary stocks, while in past post-election periods, property stocks have also performed well.”

A coalition of parties backing Prabowo had about 43% of votes, unofficial counts in the legislative contest showed, indicating a potential Prabowo government could have strong parliamentary backing.

The currency and bond markets were meanwhile more circumspect, with the rupiah last down 0.16% to 15,615  to the dollar. It had touched a one-month high of 15,545 earlier in the session.

Indonesian government bonds were similarly little changed, as investors awaited further details on the country’s new cabinet line-up and how Prabowo’s policy pledges would play out.

The 10-year yield stood at 6.623%, according to LSEG data.

“We remain cautious on adding Indonesian exposure,” said Daniel Tan, portfolio manager at Singapore-based Grasshopper Asset Management.

“Prabowo’s previous remarks that he plans to fund social assistance programmes and implement his fiscal priorities through raising debt-to-GDP ratio would raise some concern among investors, given Indonesia’s past fiscal prudence.”

A new era?

The world’s biggest single-day election saw nearly 259,000 candidates and 18 parties contest 20,600 posts, though all eyes were on the presidency and the fate of Jokowi’s legacy after a decade at the helm.

Prabowo crucially has the tacit backing of the popular president, bolstered by the inclusion of the president’s son, Gibran Rakabuming Raka, as Prabowo’s running mate.

However, the move sowed discontent across Jokowi’s cabinet and sparked speculation of a possible resignation from the country’s highly-regarded finance minister Sri Mulyani Indrawati, who has won plaudits for reforming the taxation system and for her role in steering Southeast Asia’s biggest economy through the pandemic.

She is widely expected to leave her post before the new government takes charge in October, and Prabowo’s next challenge will be to pick a credible finance minister to fill her shoes.

“In the near term, we can expect little change in the country’s economic policy framework from the Jokowi to the Prabowo administrations,” said Tom Pepinsky, a professor of government and director of the Southeast Asia Program at Cornell University.

“But as always with Prabowo, one must be wary of how he would respond to disappointing or negative economic news, and his dominating performance will mean that he will assume office with a relatively free hand.”

Reuters