JAKARTA -- Indonesia's benchmark stock index on Friday closed at an all-time high for the first time in nearly two years, driven by a return in foreign investor appetite, as uncertainty about fiscal and monetary policies in the U.S. fades.
The Jakarta Composite Index rose for the fifth straight session and closed at 5,540.43 on Friday, above the previous record of 5,523.29 on April 7, 2015.
Foreign net buying hit 1.8 trillion rupiah ($135 million) on Thursday, the largest one-day net inflow so far this year, according to stock exchange data. Stocks with a large market capitalization such as Unilever Indonesia, the local unit of the Anglo-Dutch consumer goods giant, led the gains.
The lift in the JCI was part of a broader rise in emerging market stocks after the U.S. Federal Reserve signaled that the pace of interest hikes will be gradual, calming concerns of capital outflows from emerging market assets. MSCI's broadest index of Asia-Pacific shares outside Japan rose 2% on Thursday and was up another 0.3% on Friday.
Market participants said the rally in Indonesian stocks has also been driven by expectations that credit rating agency S&P Global will upgrade the country to investment grade this year. S&P rates the country at BB+, one notch below investment grade, while peers like Moody's and Fitch already give an investment grade rating.
Taye Shim, head of research at Mirae Asset Sekuritas, said that an upgrade, which is likely to come sometime in May or June, will further inject optimism among foreign investors and lead to a "large-cap driven rally."
Still, some say that a long-term rally will depend on whether the modest improvement in economic growth in 2016 will accelerate. The central bank has stopped cutting benchmark interest rates since November, limiting the chances of monetary easing to boost economic activity.
Among the biggest gainers in 2016 have been coal and energy stocks such as United Tractors and Medco Energi Internasional on the back of a rally in commodities prices. State-owned construction stocks, on the other hand, have been underperforming the benchmark index.