JAKARTA -- There is less than a week to go before voters choose Indonesia's next president, and the unexpectedly tight race is weighing on the country's stocks.
The benchmark Jakarta stock index opened slightly lower on Thursday, at 4905.73, and remains around 3% off its high for the year in May.
While Jakarta Gov. Joko Widodo was at one point a heavy favorite to win the election, recent polls show rival Prabowo Subianto is gaining fast. Market participants see a growing chance of a surprise victory by Prabowo, a former special forces general who is regarded as nationalistic.
"With a high-degree of unpredictability in the upcoming presidential election, we advise investors to go defensive," said Harry Su, head of research at Bahana Securities. His top picks are stocks that are relatively resilient to changes in government policies and the economy, such as instant noodle maker Indofood Sukses Makmur and telecommunications company Telekomunikasi Indonesia. The rupiah's recent decline against the dollar also spurred Su to recommend Astra Agro Lestari, a palm-oil company that exports its products in dollars.
Foreign investors, who have poured more than 44 trillion rupiah ($3.5 billion) into Indonesian stocks this year, are likely to set the market tone after the vote. A recent Nomura survey found 90% of investors expect Widodo to beat Prabowo by a margin of 8.5%, wider than data shown by local pollsters. The respondents said a Prabowo win would initially send the Jakarta index tumbling 5.8%, compared to a 5% rally if Widodo prevails.
"In the event of a Prabowo victory or a very narrow win for (Widodo), we believe there is scope for further downside in equities" the report concludes.
Muhamad Al Fatih, a senior technical analyst at Samuel Sekuritas, said the market would react "negatively" to a Prabowo win but that the grim mood would not last long. He projects the short-term reaction would send the index as low as 4,700, but he reckons it would bounce back to 5,200 as investors focus on strong economic growth prospects.
Some may be ready to pounce if stocks drop.
"We are looking to use the outcome of the election to (boost) our portfolio if valuations start to look attractive," said Bharat Joshi, investment manager for Aberdeen Asset Management. His Aberdeen Indonesia Fund includes domestic-focused consumer stocks, such as Unilever Indonesia and beer brewer Multi Bintang Indonesia. Joshi said these companies have further room to grow as the middle class expands.
"We focus on the fundamentals," he said. "Good companies do well regardless of the political climate."