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Economic Analysis: Will Indonesia’s New President be Good for Stocks?

Article Summary:

  • The Jakarta Composite Index has soared to a 15 month high.
  • The Indonesian rupiah has strengthened 4 percent versus the U.S. Dollar.
  • Joko Widodo, Indonesia’s new president, will have to push through a number of economic reforms to keep the momentum going.
Joko Widodo is Indonesia's New Leader
Joko Widodo is Indonesia’s New President

This morning the Jakarta Composite (JCI) surged higher. It has hit a brand new 15 month high after Joko Widodo was confirmed as president of the Indonesia. Indonesia is the world’s third largest democracy. Equities on the Jakarta rose to 5,223.97 in early trade then fell off a bit.

The Indonesian rupiah strengthen 0.3 percent versus the dollar at 11,162. The courts upheld his victory after the losing candidate said Joko, popularly known as Jokowi, cheated. Whether or not this equities rally will continue will depend on whether or now Jokowi will be able to push his economic reforms through.

A lot of the euphoria has been priced in, we now wait and see. For the year, the Jakarta Composite is up 22 percent and the rupiah is up four percent against the dollar. We would be a bit cautious now as valuations are not very attractive and now, the financial markets will be watching Jokowi to make sure he delivers on promises. Indonesia needs reforms and other measures to boost their economy.

We are expecting his confirmation to boost his nation’s economy. Especially the rupiah and the JCI and we are seeing positive sentiment now in their currency. We are now watching a key support at 11,722 with a break their opening the gates for 11,500. Jokowi and his political party called the Democratic Party of Struggle (PDI-P) will assume office on October 20 and will need to move fast. Indonesia has some big economic issues coming up. These include a rising fuel subsidy bubble and an ever increasing current account deficit. He has promised to cut fuel subsidies, which will save the government $30 billion, improve infrastructure and enact major reforms to attract foreign investment into the Indonesian economy.

In order for this to happen, more parties will need to join his camp. Some have already sign on. The more that join, the easier he can push his reforms through. Members of opposing parties have already said they are looking to out their chairs so they can join the Jokowi coalition.

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