Indonesia Stocks drop most in four months as elections scrapped
By Bloomberg
Indonesian stocks dropped, dragging the benchmark index by the most in almost four months, after the nation's parliament passed a law scrapping direct local elections. The rupiah weakened and bonds fell.
The Jakarta Composite Index slid 1.3 percent to close at 5,132.563, the steepest decline since May 30. PT Bank Mandiri sank 4.5 percent and PT Bank Rakyat Indonesia tumbled 3.9 percent. The local currency depreciated 0.3 percent to 12,023 per dollar, while the yield on the government's 10-year bonds climbed six basis points to 8.22 percent, prices from the Inter Dealer Market Association show.
"The new law is causing disappointment," Tjandra Lienandjaja, analyst at PT Mandiri Sekuritas, said by phone from Jakarta. "The change could pose a challenge to infrastructure development as the government's projects could face greater opposition from regional administrations."
The vote is a setback to incoming leader Joko Widodo, known as Jokowi, as he and parties supporting him had opposed it. The bill was sponsored by the 'Red and White' coalition of losing presidential candidate Prabowo Subianto. The losing side of July's presidential ballot holds about three-quarters of seats.
The parliament voted in favor of an amendment to a law on governance that turns back the clock to local assemblies choosing leaders, Priyo Budi Santoso, a lawmaker chairing the meeting, said in Jakarta today.
Transfer Power
The government in Jakarta began to transfer power to the regions after the fall of Suharto in 1998 to head off various secessionist movements and to better address local development in an archipelago that would stretch from New York to Alaska.
Jokowi has pledged to build 2,000 kilometers (1,244 miles) of new roads and 10 seaports in his effort to boost annual economic growth above 7 percent, a pace unseen since the 1997-98 Asian financial crisis.
A measure of construction, property and real estate companies has surged 38 percent this year through yesterday, compared with 22 percent for the Jakarta Composite Index.
The Jakarta gauge is valued at 14.7 times 12-month estimated earnings, or a 35 premium to the MSCI Emerging Markets Index, data compiled by Bloomberg show.
The local measure will probably rise to 6,000 by the end of 2015 as smaller government fuel subsidies lead to more spending on infrastructure and health care, Elvyn Masassya, who oversees the equivalent of $14.4 billion as president director of BPJS Ketenagakerjaan, Indonesia's state pension fund, said yesterday.
Jokowi has pledged to cut the $25 billion fuel-subsidy bill as soon as he comes into power next month, freeing up funds to build sea ports and improve access to health care.
Retailer PT Modern Internasional gained 2.2 percent today, while PT Matahari Putra Prima advanced 0.9 percent. Consumer product company PT Unilever Indonesia rose 1.6 percent, providing the biggest support for the Jakarta Composite Index.