Indonesia market pullback brewing

Results for Indonesia’s presidential elections are due tomorrow and signs are suggesting a protracted process still lies ahead.

Source: Bloomberg

In the lead up to the elections, market favourite Jakarta governor Joko ‘Jokowi’ Widodo enjoyed a strong lead against rival former general Prabowo Subianto in opinion polls.

This boosted investor sentiment, with the Jakarta Composite is up 19% year-to-date and the rupiah is up 4.8% year-to-date.

While most unofficial tallies are indicating a win for Jokowi, both sides have already claimed victory.

We are likely to see the candidates contest results, which could lead to at least another month of uncertainty as the process runs out in court.

Prabawo’s side has already claimed that there are signs of fraudulent activities in the voting process.

The Indonesian markets appear to have largely rallied on political euphoria, with economic fundamentals still as weak as before. The country still faces weak commodity prices and exports, and rising pressure on its accounts from its subsidy programs, particularly in fuel.

As the euphoria fades, investors will increasingly realise that there’s yet to be any concrete signs of growth being revived in the short term or likely to take profit. A pullback could also be fuelled by the tapering of QE3, scheduled to end in October, the same time the new Indonesian administration takes over.

Ahead of the Singapore Open

Asia trading sessions ended last week on a low note as most markets were weighed down by rising geopolitical risks.

Eyes will be on the developing Ukraine-Russia conflict, where European Union foreign ministers will be deciding on further sanctions against Russia. This will have an impact on European trade and possibly have a knock on impact for Asian markets.

There will not be many strong market leads early this week, with most of the heavier data coming at the tail end. This will be in the form of Japan’s inflation rate, China’s manufacturing data and the US jobless claims.

Korean and Australian markets have kicked off the week on a positive note. We are calling for the MSCI Singapore to open at 0.15 points higher, 378.27 points.

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