Jokowi’s stimulus pledge wins praise from equity analysts

Joko Widodo’s pledge to deliver the second stimulus package spurred the stock market. (Twitter pic/jokowi)

SINGAPORE: President Joko Widodo’s pledge to provide a second stimulus package to counter the coronavirus’ impact on Southeast Asia’s biggest economy is being lauded by stock analysts.

Indonesia is working on a second stimulus package that will be “sizable” and “bigger” than the 10.3 trillion rupiah boost announced last week, Indonesia’s Coordinating Minister for the Economy Airlangga Hartarto said in an interview Monday.

The new fiscal package would include spending not included in the budget, Hartarto said, implying the deficit may widen from an original target of 1.76% of gross domestic product.

The government now estimates that economic growth would slow to 4.7% in the first quarter from a year earlier, which would be the weakest pace since 2009.

Concerns over the economic impact of the virus had triggered a sell-off in the nation’s stocks, pushing the benchmark Jakarta Composite Index to the cusp of a bear market on Monday. The gauge is down 18% from a record high in 2018.

The nation’s stocks rose on Tuesday following the government’s pledge to deliver the second stimulus package.

Shares also climbed amid a global rebound in riskier assets after central banks from the US, Japan and Europe pledged to act appropriately to address mounting risks from the coronavirus.

Australia’s central bank slashed the cash rate today by a quarter percentage point to a record low 0.5%.

Indonesian risk assets have been fragile amid concern over capital outflows even after the raft of government and central bank measures to support economic growth.

Foreign investors were net sellers of more than US$2 billion of Indonesian bonds and stocks in February, according to data compiled by Bloomberg.

Here is what the market participants are saying about Indonesia’s stimulus:

Mirae Asset Sekuritas
Analyst Hariyanto Wijaya

  • The government’s announcement of new stimulus will be good for the stock market as it will help spending by the middle class, but we will need to see further details
  • 2Q recovery is also expected to come from the plantation sector
  • Expects rate of new coronavirus cases to slow down in China, which will revive demand for palm oil and drive a rebound in the crude palm oil price. That will be good for Indonesian plantation stocks.

Mandiri Sekuritas

  • Further fiscal policy stimulus will support private consumption
  • “We also re-iterate our view that the fiscal deficit could reach 2.5% of GDP this year.”

PT First State Investments Indonesia
Fund manager Amica Darmawan

  • Fiscal stimulus is more important now than monetary easing
  • Bank Indonesia has also done “a very good job” in checking rupiah volatility amid fund outflows.

Ciptadana Sekuritas
Director John Teja, Head of Research Arief Budiman and Economist Nicko Yosafat Marpaung.

  • Of all the measures, Bank Indonesia’s various easings will have the biggest positive impact, such as its recent rate cut.
  • “We see the government as being very responsive because it sees the need to excite consumption, especially for low- and middle-income people.”
  • Stock market recovery will also depend on regional and global sentiments, not just stimulus.
  • Worst-case scenario is for Jakarta Composite Index low of 4,900 in 1H. Rapid rebound could follow in 2H if an end of the coronavirus outbreak is in sight.
    Year-end JCI target cut to 6,200 from 6,930, remains overweight on Indonesia.

Index rose 2.8% to 5,507.41 as of 2.56pm in Jakarta.