Analysts see brief rally in JSX
The Jakarta Post, Jakarta
Monday's peaceful presidential elections will provide positive sentiment for the Jakarta Stock Exchange (JSX), but that will likely be temporary as market players realize that the true battle lies ahead in the second-round election in September.
Stock analyst Dandossi Matram said on Monday that the recent rally in the stock market could continue for weeks to come with the market trying to take advantage of the "positive psychological perception of the election."
"But it will not last long, as no majority winner is likely to emerge (from the first round). So, the recent rally will, I think, be short-lived," Dandossi said.
The elections rules stipulate that if no candidate gains a majority of more than 50 percent of the vote in the first round, a second round on Sept. 20 will be held for the top two winners, which some have feared could create conflict between supporters.
Five pairs of presidential and vice presidential candidates are currently vying to secure the country's leadership for the next five years.
Last week, on expectations of a peaceful election, the Jakarta stock composite index rose by more than 3 percent on the previous week to close at 745.03 on an average daily volume of 1.26 billion shares, worth Rp 636.32 billion (US$67.8 million). The rupiah strengthened by more than 2 percent as compared with the week before. The rupiah closed at 9,150 per U.S. dollar on Friday.
Supporting the sentiment also were the limited impact of the recent U.S. interest rate hike of 0.25 percent and Bank Indonesia's measures to reduce excessive liquidity in the banking sector, including the raising of minimum reserve requirements for banks.
The rallies in the local market and the rupiah last week were in stark contrast to previous weeks, which saw the rupiah hurt by expectations of an aggressive rate hike in the U.S. and political concern at home ahead of the election.
With polling day on Monday passing off peacefully, hopes are high that the surge will continue.
However, "until we know the real winner, the risks (of a fall) will remain in the market. That's why I think the upward trend will be temporary," Dandossi said.
He did not identify what stocks in particular might gain the most from the next brief rally, saying that the rise would have more to do with sentiment rather than specific corporate action.
A dealer at a foreign bank however, said that the stock index would be pushed up by blue-chip shares, most of which had lost some value from the market slump last month.
Citigroup economist Anton Gunawan also noted that the trouble- free election was a good sign for the market.
"The peaceful July 5 election will definitely improve market sentiment as it will reduce uncertainty, but there's still a long way to go before the second round, and anything could happen along the way.
"So, despite positive market sentiment, I think the risk will remain," Anton said.