Indonesian elections in focus this week

Focus will be on the race for Indonesian presidency this week between Jakarta Governor Joko "Jokowi" Widodo and former special forces chief Prabowo Subianto. 

Source: Bloomberg

The Indonesian currency and stocks were earlier lifted by investors bullish on a win by Jokowi, seen as the more market-friendly candidate. However, the elections on Wednesday have become too close to call after frontrunner Jokowi saw his poll lead begin to slip in mid-May to just 4 points, from as high as over 30 points. Subianto got a boost when it won the backing of Indonesia’s second largest party, Golkar, which had also supported incumbent president Susilo Bambang Yudhoyono.

Investors are concerned that Prabowo’s nationalistic stance could see policies discouraging foreign investment and ownership of assets, and weaken the currency. That has been reflected in a pullback in the markets, with the rupiah falling around five percent since mid-March to become the worst performer among 24 emerging-market currencies tracked by Bloomberg. The Jakarta Composite Index is down by almost 4% from a one-year high in May, after climbing 17% in the prior three months when Jokowi looked unlikely to be seriously challenged. 

Prabowo’s controversial background will also do no favours in soothing investors’ nerves. During his time as an army leader, he has been linked to human rights violations on more than one occasion, while serving under former president Suharto.

Jokowi has been the market favourite with his relatively more pro-business approach and humble roots. He has also gained a reputation for slashing through red tape and pushing through big projects during his time as Jakarta mayor.

However, whoever wins will have his work cut out in pulling Indonesia out of the “Fragile Five” – a group of economies identified by Morgan Stanley as particularly vulnerable, partly due to their large current account deficits.  The other countries in the group comprise Brazil, India, Indonesia, South Africa and Turkey.

Indonesia has enjoyed an average growth of over six per cent over the past decade, fuelled largely by its export of commodities to China. However, GDP growth has slowed, at 5.8% last year and is expected to cool to 5.2% in 2014.

Both candidates are promising overdue infrastructure spending if they win, and to boost government coffers by cutting back on costly fuel subsidies. However, they will face a tougher challenge sorting out the country’s economic fundamentals – particularly reducing its dependence on raw materials exports.

He will also have to tackle rising inflation with a central bank unlikely to tighten its monetary policy. Last year, Indonesia saw an inflation rate of 8.3% due to the increasing price of crude oil.

Ahead of the Singapore Open

The Singapore market ended Friday trading flat, partly with some profit-taking on the back of a week of largely positive data, particularly with better-than-expected US jobs numbers and Chinese manufacturing PMI.

We could see some investors getting back into the market today, and are calling for the MSCI Singapore to open 0.70 points higher at 373.95.

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