Indonesian politicians is gearing up for another election season, infusing the economy with a round of campaign spending and potentially lifting stocks, along with related Indonesia exchange traded funds, by as much as 20%, according to a money manager.
Alvin Pattisahusiwa, chief investment officer of PT Manulife Asset Management, Indonesia’s second-largest asset manager, projects Indonesia’s benchmark can surge by as much as 20% this year as a weak rupiah, which plunged 21% against the U.S. dollar last year, bolsters exports and election spending supports small- and mid-sized companies, Bloomberg.
Political parties usually spend big on advertising and distribute food, consumer staples and t-shirts to supporters before polls, which will increase income for businesses. [Now Some Help for Indonesia ETFs]
“The elections are a positive factor for the market,” Pattisahusiwa said. “With thousands of people campaigning for seats in the parliament, the amount of money they spend to win the vote would be good for the economy and for consumers.”
Michael Tjoajadi, president director of Schroders Indonesia, the country’s largest fund manager, also points to the stimulative effect of election spending in Indonesia but expects a less optimistic growth in the Jakarta Composite Index (JCI) this year, reports Francezka Nangoy for The Jarkata Globe.
“I do expect it to increase by 5 percent to 10 percent this year,” Tjoajadi said, warning against the negative effects of U.S. tapering and slower growth in China. [Risks Still Abound in Indonesia]
Indonesia will hold its legislative election in April and their presidential election in July.
“History shows that in the months leading to a presidential inauguration, the JCI is always on an upward trend,” Tjoajadi added.
The Market Vectors Indonesia ETF (NYSEArca: IDX) was up 2.8% Thursday while the iShares MSCI Indonesia ETF (NYSEArca: EIDO) gained 3.3%. IDX is down 26.1% and EIDO has declined 25.3% over the past year. The two ETFs have large exposure to financials, consumer staples and consumer discretionary sectors.
Since the elections would benefit smaller companies, investors may take a look at the Market Vectors Indonesia Small-Cap ETF (NYSEArca: IDXJ), which has a 15.2% weight in mid-caps, 75% in small-caps and 9.8% in micro-caps. IDXJ is down 25.1% over the past year. Like the other two funds, IDXJ is heavy on financials, but it has a lower weight in consumer staples and discretionary names while overweight industrials.
iShares MSCI Indonesia ETF
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Max Chen contributed to this article.