JAKARTA (BLOOMBERG) - With Indonesians voting in the presidential and legislative elections on Wednesday (April 17), investors are weighing prospects for the South-east Asian nation's US$522 billion (S$706 billion) stock market after the dust settles.
The Jakarta Composite Index could be a prime second-half rebound candidate, up only 4.6 per cent this year and lagging the 12 per cent rally in the MSCI Asia Pacific Index after outperforming it just one year ago.
Agricultural stocks are the main drag on gains in Indonesia, down about 5 per cent year-to-date.
Indonesian markets are closed on Wednesday.
There may be a "post-election rally" assuming a clear election result, said Mr Ferry Wong, head of Indonesian equity research at Citigroup Inc. "The rally will likely be driven mainly by domestic investors, as they are the ones who seem more cautious on the election outcome versus foreign investors."
Overseas investors have been flooding back into Indonesia ahead of the election, purchasing some US$1 billion in stocks in the market this year, the most in South-east Asia, data compiled by Bloomberg show.
The market has rallied six months before and after every election since direct presidential polls were introduced in 2004.
One group of stocks that traders have been buying up is construction companies.
The Jakarta Construction, Property and Real Estate Index has gained 13 per cent this year, making it the best sub-gauge in the stock market.
For some strategists, no matter who becomes the nation's next leader, infrastructure-related shares will extend gains as development will carry on regardless of the election result.
Last week PT Sucorinvest's Jemmy Paul said Indonesia needs to develop infrastructure "massively" and that will have to continue.
The International Monetary Fund projects 5.2 per cent growth for Indonesia in both 2019 and 2020, identical to 5.2 per cent growth last year.
While first-quarter data suggests some deceleration moving into 2019, "solid economic fundamentals should help Indonesian assets outperform this year", said Mr Win Thin, global head of currency strategy with Brown Brothers Harriman & Co in a note to clients.
"Indonesia has the luxury where it's an economy that naturally wants to grow," said Mr Christopher Watson, London-based portfolio manager for total return strategy at Finisterre Capital, in an April 12 interview in Hong Kong. "Demographics are in its favour, you have a large population, you have a reasonable resource base, increasing potential for the development of manufacturing."
And if you're looking for any indication of how stocks might react on Thursday when markets reopen, the US-listed iShares MSCI Indonesia ETF could be one place to watch overnight. The fund rose 1.2 per cent on Tuesday.
