Indonesian Stocks, Rupiah May Advance on Yudhoyono’s Party Lead

By Berni Moestafa

April 13 (Bloomberg) -- Indonesian elections that will strengthen President Susilo Bambang Yudhoyono’s hold on parliament may also spark gains in stocks and the rupiah, the nation’s biggest investment fund manager said.

PT Telekomunikasi Indonesia and PT Indosat, the nation’s two biggest phone companies, as well as toll-road operators and power stations may benefit from the government’s push for more investments following the Democrat Party’s early lead, PT Schroder Investment Management Indonesia’s Kiekie Boenawan said.

Yudhoyono presided over reforms that led the economy to expand more than 6 percent in the past two years, the fastest since the 1997 Asian financial crisis, and the polls last week may boost his chances of re-election in July. Officials had five hours on April 9 to take in ballots from 171 million registered voters across 17,000 islands in elections that were peaceful.

“The market will likely respond positively as the political uncertainty has greatly diminished,” Boenawan, whose $1.9 billion investment fund is the biggest in the country, said in an interview on April 10. “Government policies in the past five years have done well to the economy.”

Yudhoyono’s Democrat Party led the polls with 20.4 percent of the vote, according to the Indonesian Survey Institute. That’s almost three times its tally in 2004’s election and enough for a party to nominate a presidential candidate without a coalition. The official results are expected next month.

Stocks Rise

The Jakarta Composite index has gained 8.1 percent this year after a record 51 percent drop in 2008. Indonesia has drawn the second-highest equity-fund inflows this year among nine Asian economies tracked by Bloomberg.

The measure has risen 72 percent since Yudhoyono took office on Oct. 20, 2004, the best-performing benchmark index in Southeast Asia. The MSCI Asia Pacific Index was little changed, falling 0.03 percent during that period. Indonesia’s markets were closed on April 9 and April 10.

While stocks rallied, the rupiah has fallen 20 percent, the second-worst performer among 19 currencies in Asia Pacific tracked by Bloomberg.

The country’s economic growth may slow to 3 percent in 2009 from 6.1 percent last year, according to the government’s forecast in February. Increased government spending ahead of the elections may have also masked the full blunt of the global economic crisis, said Karim Raslan, a lawyer and political consultant who works out of Kuala Lumpur and Jakarta. Government bureaucracy may also stall any investment plans, he added.

‘Very Awkward’

“The government mechanism here is very awkward, so if you have a stimulus package, the effectiveness of the implementation is limited,” he said in Jakarta.

The Jakarta Composite may rise 23 percent to 1,800 by the end of the year, Elvyn G. Masassya, investment director at PT Jaminan Sosial Tenaga Kerja, the nation’s biggest pension fund, said in an April 8 interview. The expected gain was based on that day’s closing numbers, and he added that “this is the time” to build up stock investments for the 61.7 trillion rupiah ($5.5 billion) fund.

“We probably need to see some of the policies that the current government has been talking about come to fruition,” said Christopher Wong, a fund manager at Aberdeen Asset Management Asia Ltd. in Singapore, which oversees $20 billion. “That will have a big multiplier effect on the economy.”

Indonesia’s foreign exchange reserves climbed 74 percent to a record $60.5 billion since Yudhoyono was sworn in, and he has pushed through new laws to woo investors, including tax breaks on investments. Boediono, the central bank governor who has cut borrowing costs to a four-year low, said April 6 he expects the rupiah to rise by the end of the year following the election.

“Political stability is important,” said Freddy Hendradjaja, a fund manager at Jakarta-based PT Danareksa Sekuritas, Indonesia’s third-biggest brokerage with $442 million in assets. “With Yudhoyono, we can expect to see the same competent people on the economic team.”

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net