(Bloomberg) — Indonesian stocks are set to advance as traders bet on policy continuity after Defense Minister Prabowo Subianto declared victory in Wednesday’s presidential vote.
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The Jakarta Composite Index may climb to a fresh record to eclipse the previous closing high set on Jan. 4 after the ex-general secured nearly 60% support in quick counts done by private pollsters. The iShares MSCI Indonesia ETF rallied 2.4% on Wednesday, the biggest one-day gain in three months.
A swift victory for Prabowo is likely to remove the uncertainty that would arise from a prolonged election, and may draw more foreign inflows into Indonesian equities and bonds. The winning candidate and his running mate Gibran Rakabuming Raka have pledged to transform Indonesia into a high-income economy by 2045 by building infrastructure and tapping more of Indonesia’s vast natural resources.
“Given that Prabowo-Gibran had largely campaigned on a platform of policy continuity, we believe this will bring the focus of investors back to the fundamentals,” Morgan Stanley analysts including Derrick Kam and Selvie Jusman wrote in a report. “We see growth momentum improving, led by capex, inflation staying within the central bank’s target range, and the potential for rate cuts by Bank Indonesia from June onwards.”
The Jakarta Composite Index has fallen 0.9% to 7,209 since the start of the year, mirroring a 0.8% decline in the MSCI Asia Pacific Index.
Citigroup Inc. expects Indonesian equities to rally following the election outcome and maintained its forecast for the benchmark index to climb to 7,750 by June, according to a report. “Post market euphoria, the market should behave on the sidelines until cabinet announcements are made or policy reforms are implemented,” Citi analysts including Ferry Wong and Ryan Davis wrote in the note.
One-month offshore dollar-rupiah non-deliverable forwards were little changed on Thursday after sliding 0.6% the previous day. Indonesia’s currency has fallen 1.3% against the dollar since end-December.
“This first round victory will bring near-term relief to markets,” Lavanya Venkateswaran, an economist at Oversea-Chinese Banking Corp., wrote in a note. “Beyond this initial reaction, the Prabowo-Gibran pair will need to do more to convince market participants that policy continuity, specifically economic priorities, and credible policy formulation, will be adopted during their tenure.
–With assistance from Matthew Burgess.
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