February 20, 2024
JAKARTA – Indonesia is expected to see a surge of capital inflows in the coming months after Defense Minister Prabowo Subianto took a strong lead in the preliminary results of the presidential race, as investors perceive the outcome as continuity of the current government, which is deemed good for business.
Prabowo is set to succeed President Joko “Jokowi” Widodo after securing nearly 60 percent of the vote, according to several quick counts conducted by credible pollsters. With Jokowi’s eldest son Gibran Rakabuming Raka as his running mate, the pair’s lead is regarded as too big to challenge, analysts say.
The Indonesia Stock Market (IDX) Composite index reacted to the news positively, rising to 7,303 at closing time on Thursday, 1.3 percent higher than Tuesday’s close.
According to data from trading app Stockbit, the IDX booked Rp 2.73 trillion (US$174.9 million) of foreign net buys a day after the election.
Experts said the stock market rally showed that there was a positive influence from the election quick count results, as investors feel certainty about the policies that will be adopted by the new president.
“However, we need to be wary of potential lawsuits from losing candidates, which may disturb investors’ confidence in the short term, similar to our experience after the 2019 election,” said Isfhan Helmy, head of institutional research at the local brokerage Sinarmas Sekuritas, who spoke to The Jakarta Post on Thursday.
Almost five years ago, Prabowo, who lost against Jokowi, decided to challenge election outcome in the Constitutional Court, which was followed by days of violent demonstrations by his supporters.
Isfhan said he expected a surge of capital inflow in coming months that will also help stabilize the rupiah exchange rate against the United States dollar, predicting a dollar will buy between Rp 15,500 and Rp 15,900.
State-owned Bank Mandiri and private lender Bank Danamon also see the potential for significant foreign inflows into Indonesian stocks and bonds, as well as in the form of foreign direct investment (FDI).
“With a sustainable trade surplus and low inflation, the rupiah should have room to appreciate beyond its current level,” said Bank Danamon economist Irman Faiz in a statement.
Irman forecast the rupiah could strengthen further to Rp 14,901 per US dollar throughout the year. The rupiah stood at Rp 15,606 to the greenback, according to Bank Indonesia data, on Thursday.
M. Adityo Nugroho, an analyst at Mirae Asset Sekuritas, explained that foreign investors have been aggressive in accumulating stocks of Indonesian firms, especially big banks.
Between Jan. 26 and voting day on Feb. 14, foreign investors booked Rp 10.3 trillion in net buys at the IDX.
“We may see a significant capital inflow in the next two weeks. However, there is also a possibility that those investors have become comfortable [with their current investment levels],” Adityo told the Post on Thursday.
Sectoral gains
Experts also forecast that stocks in certain publicly listed firms related to Prabowo’s campaign promises, such as infrastructure construction and free lunches, as well as firms owned by parties related to him, may enjoy a tailwind this year.
Erwan Teguh, head of research at state-run local brokerage BNI Sekuritas, said that historically infrastructure, property and basic industrial sectors performed better than the IDX Composite index after the 2014 and 2019 elections, as President Jokowi had a pro-infrastructure policy.
“Thus, stocks in the infrastructure and construction sector will experience a surge in value this year, as well as stocks in certain consumer firms, which are related to the program of the elected president [like free lunches],” Erwan explained to the Post on Thursday.
Mirae Asset’s Adityo also said the cement and construction sector would get a boost, as Prabowo would continue Jokowi’s infrastructure push, including the future capital city of Nusantara in East Kalimantan.
State-owned construction firm PT PP and its subsidiary PP Presisi, as well as Wijaya Karya’s subsidiary WIKA Beton and Adhi Karya saw their stock prices surge more than 20 percent a day after the election, according to the IDX.
Dairy firms too will benefit from positive sentiment as a result of Prabowo’s proposed free milk program for students, he said.
Isfhan from Sinarmas Sekuritas opined that the IDX Composite would remain largely driven by the banking sector in the future, but others like pharmaceutical and hospital stocks may be lifted up given Prabowo’s planned healthcare programs.
“The renewable energy sector could also be an investment alternative, as the new government will accelerate programs to hit its net-zero target,” he stated.
Meanwhile, Reliance Sekuritas’ investment consultant Reza Priyambada said some investors may look into investing in stocks with ties to Prabowo and Gibran campaign teams or related parties, as they would benefit from the pair’s victory.
These include coalminer Adaro Energy, Mahaka media group, energy conglomerate TBS Energi Utama and many others.
“However, we need to pay attention to how much the influence of the new president could affect their fundamental performance in the future,” Reza said in a statement, suggesting investors remain cautious about their actual financial performances.