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Stock Traders’ Guide to Navigating Indonesia’s Presidential Vote

(Bloomberg) -- Most investors expect the endorsement of a new Indonesian president in a single round of voting on Wednesday, with the result potentially driving the local stock benchmark to a record high.

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Continuity of outgoing President Joko Widodo’s economic policies is the main concern of investors in Southeast Asia’s largest equity market by capitalization. The key Jakarta Stock Exchange Composite Index has added some 45% in the more than nine years since Jokowi — as he’s widely known — took office, and closed at an all-time high in early January.

“It would be best for Indonesia and for investors to see this election concluded in one round as this would provide certainty on the policies, whether it is Jokowi 2.0 or if we are back to the drawing board,” said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital Pte Ltd. “If it goes into two rounds, markets would likely be range-bound until June as investors assess the political chess moves that would be made.”

Jokowi’s preferred successor, Defense Minister Prabowo Subianto, is competing against former Jakarta Governor Anies Baswedan and former Central Java Governor Ganjar Pranowo to win a majority in the first round of voting. If no candidate garners at least 50% of the vote, a runoff between the top two contenders will be held on June 26. The winner will take office on Oct. 20.

A single-round election could send the JCI Index up to a new peak of some 7,500 this year, said Rajiv Batra, an Asia equity strategist at JPMorgan Chase & Co. That implies a 1.9% gain from its record high closing level set on Jan. 4, according to Bloomberg calculations.

Meanwhile, the election hasn’t prompted the bank to change the overweight stance on Indonesia shares that it has maintained since the second half of 2020. Sat Duhra, a fund manager at Janus Henderson Group Plc, has also stuck to his overweight view.

Indonesia has “made so much progress in terms of infrastructure, addressing a long held current account deficit and FDI, and I would not expect this to change with a new government,” Duhra said. “The story stays unchanged and banks are the best way to play it.”

Banks and Consumer Stocks

Citigroup Inc. prefers banks among Indonesian shares, citing expectations of loan growth and asset quality. It ranks PT Bank Rakyat Indonesia as its top pick, followed by PT Bank Mandiri, PT Bank Negara Indonesia and PT Bank Central Asia. Citi projects the JCI will advance to 7,750 by June.

The four big lenders are also favored by RHB Sekuritas Indonesia. In addition, the broker bets some smaller banks could benefit from the macro environment, head of research Andrey Wijaya said in an interview. The analyst recommends telecommunication companies, consumer and retail stocks, estimating the JCI will jump to 7,900 by year-end.

Along with banks, JPMorgan also likes consumer companies. With GDP per capita tipped to cross the $5,000 mark this year, retailers such as PT Sumber Alfaria Trijaya, PT Mitra Adiperkasa and food producers such as PT Indofood CBP Sukses Makmur can benefit from potentially higher domestic consumption, according to analyst Henry Wibowo.

“We expect a new wave of consumption and discretionary spending to come,” he wrote in a note in January. “The Indonesian consumer will be able to spend more on new categories of consumer products in the next decade as income per capita rises.”

Nickel Downstream

The election comes as Indonesia pushes for strategic investments in downstream nickel processing and battery manufacturing. Its efforts could drive strong state support and create a haven status for state-owned enterprise miners, according to Bloomberg Intelligence analyst Mary Ellen Olson.

“We are entering the third year of the nickel downstream story for Indonesia, with excitement about nickel miners notably much lower amid oversupply concerns and low nickel prices,” JPMorgan’s Wibowo wrote. “We remain upbeat on the EV ecosystem and downstream narrative.”

--With assistance from Lee Miller.

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