Rupiah, Stocks Fall as President-Elect Joko Widodo Suffers Political Setbac
The rupiah has slumped to its weakest level in
eight months while the country’s benchmark stock index has lost 4.5%
over the past three weeks, as of the market’s close Thursday.
The
losses are spurred by worries that President-elect Joko Widodo will be
unable to follow through on promises to build infrastructure and cut
expensive fuel-price subsidies, moves deemed critical to juicing up
economic growth and attracting foreign investment.
The latest
setback came Tuesday when Indonesian lawmakers selected an opposition
politician as the next head of a consultative assembly that has the
power to amend the constitution and impeach the country’s president. On
Wednesday stocks fell 1.5%.
“The opposition has thus far proven
more united than our previous expectation and is bent on using every
possible mechanism to deter and derail President-elect Joko Widodo’s
potentially progressive reforms,” Nomura said. Foreign investors, whose
buying of Indonesian equities has been a support all year, may pull back
if expectations aren’t met, it said.
For now, international money managers say they are sticking with the
country, convinced that its long-term growth outlook, driven by a
large, young population and growing middle class, is positive. “In four or five years’ time this will be just noise,” said Monem Salam,
president at Saturna Sdn., which manages funds invested in Indonesia as
part of around $4 billion assets under management globally.
But
Mr. Salam said there could be short-term volatility, particularly given
that global investors are concerned about a possible selloff in
emerging markets as the U.S. Federal Reserve prepares to raise interest
rates. “You’re talking about a double-whammy that could potentially
happen,” he said.
Indonesia’s large current-account deficit and
slowing growth may make it vulnerable to outflows—as it was during a
long selloff that began in May last year—because its finances are deemed
weaker than other fast-growing emerging markets. Last year, Indonesia
was lumped in with South Africa, Brazil, India and Turkey as the
“fragile five” economies for their vulnerability to outflows. Although
the current-account deficit in Indonesia has shrunk, it remains larger
as a proportion of gross domestic product than that of other economies
in the region.
This year, however, Indonesia has enjoyed strong
inflows, particularly from foreign investors won over by a
longer-than-expected run of easy money policies in the U.S. and
improving economic fundamentals in Indonesia itself. The euphoria was
extended by Mr. Widodo’s election win in July, drawing parallels with
India where the election win of Narendra Modi has rekindled investor interest.
“At
the end of the day the main driver for reforms and change will be the
young population. We saw that in India this year and we are starting to
see it in other emerging market countries,” said Simon Quijano-Evans, emerging market analyst at German bank Commerzbank AG
.
Patricia Ribeiro, senior portfolio manager at American
Century Investments in New York, which manages around $140 billion, said
the recent political developments had not altered her view of
Indonesia. “Markets may initially over react to this [recent political]
news,” she said. “But we continue to focus on identifying companies with
improving fundamentals and expect our holdings to perform well over the
medium to long-term regardless of the recent political developments.”
Singapore’s
Fullerton Fund Management is also sticking to its investments. “Whilst
the market may remain volatile on political news flow, we view that
President-elect [Joko] Widodo will be able to carry on with a number of
his key reforms, such as infrastructure development, even without a
parliamentary majority,” said Michelle Sim, manager of Fullerton’s regional equity fund, part of $9.6 billion it manages globally.
Saturna
Sdn. manages funds domiciled in Malaysia and invested in Indonesia.
This article previously stated that Saturna managed funds in Indonesia.
(Oct. 10, 2014)
eight months while the country’s benchmark stock index has lost 4.5%
over the past three weeks, as of the market’s close Thursday.
The
losses are spurred by worries that President-elect Joko Widodo will be
unable to follow through on promises to build infrastructure and cut
expensive fuel-price subsidies, moves deemed critical to juicing up
economic growth and attracting foreign investment.
The latest
setback came Tuesday when Indonesian lawmakers selected an opposition
politician as the next head of a consultative assembly that has the
power to amend the constitution and impeach the country’s president. On
Wednesday stocks fell 1.5%.
“The opposition has thus far proven
more united than our previous expectation and is bent on using every
possible mechanism to deter and derail President-elect Joko Widodo’s
potentially progressive reforms,” Nomura said. Foreign investors, whose
buying of Indonesian equities has been a support all year, may pull back
if expectations aren’t met, it said.
For now, international money managers say they are sticking with thecountry, convinced that its long-term growth outlook, driven by a
large, young population and growing middle class, is positive. “In four or five years’ time this will be just noise,” said Monem Salam,
president at Saturna Sdn., which manages funds invested in Indonesia as
part of around $4 billion assets under management globally.
Mr. Salam said there could be short-term volatility, particularly given
that global investors are concerned about a possible selloff in
emerging markets as the U.S. Federal Reserve prepares to raise interest
rates. “You’re talking about a double-whammy that could potentially
happen,” he said.
Indonesia’s large current-account deficit and
slowing growth may make it vulnerable to outflows—as it was during a
long selloff that began in May last year—because its finances are deemed
weaker than other fast-growing emerging markets. Last year, Indonesia
was lumped in with South Africa, Brazil, India and Turkey as the
“fragile five” economies for their vulnerability to outflows. Although
the current-account deficit in Indonesia has shrunk, it remains larger
as a proportion of gross domestic product than that of other economies
in the region.
This year, however, Indonesia has enjoyed strong
inflows, particularly from foreign investors won over by a
longer-than-expected run of easy money policies in the U.S. and
improving economic fundamentals in Indonesia itself. The euphoria was
extended by Mr. Widodo’s election win in July, drawing parallels with
India where the election win of Narendra Modi has rekindled investor interest.
“At
the end of the day the main driver for reforms and change will be the
young population. We saw that in India this year and we are starting to
see it in other emerging market countries,” said Simon Quijano-Evans, emerging market analyst at German bank Commerzbank AG
.
Patricia Ribeiro, senior portfolio manager at American
Century Investments in New York, which manages around $140 billion, said
the recent political developments had not altered her view of
Indonesia. “Markets may initially over react to this [recent political]
news,” she said. “But we continue to focus on identifying companies with
improving fundamentals and expect our holdings to perform well over the
medium to long-term regardless of the recent political developments.”
Singapore’s
Fullerton Fund Management is also sticking to its investments. “Whilst
the market may remain volatile on political news flow, we view that
President-elect [Joko] Widodo will be able to carry on with a number of
his key reforms, such as infrastructure development, even without a
parliamentary majority,” said Michelle Sim, manager of Fullerton’s regional equity fund, part of $9.6 billion it manages globally.
—Ben Otto and Chiara Albanese contributed to this article.
Corrections & Amplifications Saturna
Sdn. manages funds domiciled in Malaysia and invested in Indonesia.
This article previously stated that Saturna managed funds in Indonesia.
(Oct. 10, 2014)
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