April 18, 2019 / 1:58 AM / in 3 months

Indonesia's rupiah, bonds jump; stocks seen following as Jokowi set for re-election

HONG KONG/JAKARTA, April 18 (Reuters) - Indonesia’s currency and bond markets opened higher on Thursday after early election results indicated incumbent leader Joko Widodo is set to be re-elected, giving him another five years to deliver on a reform agenda.

The rupiah jumped 0.6 percent to 14,000 per dollar at the start of trade, a seven-week high.

Benchmark 10-year government bond yields edged down to 7.598 percent.

“The outcome is favourable from a market perspective. (Policy) continuity is what we would expect,” said Shamaila Khan, New York-based director of emerging market debt at Alliance Bernstein.

Unofficial quick counts showed Widodo - popularly known as Jokowi - was set to win Wednesday’s popular vote and come at least eight percentage points ahead of challenger Prabowo Subianto, who investors feared would be a champion of economic nationalism.

The counts also suggested Widodo’s coalition will increase its hold on the national legislature.

Government insiders said he is poised for a surge of reform, though analysts note he was cautious in his first term. On the list of areas he might tackle is sagging foreign investment, the troubled education system and restrictive labour rules.

Joanne Goh, a DBS equity strategist in Singapore, expects Indonesian stocks, which start trading at 0200 GMT, to join in the rally.

During Widodo’s tenure, Indonesia “steered through a mini emerging markets currency crisis in 2018 without much negative impact on growth nor the financial system,” she said in a note on Thursday morning.

DBS raised its benchmark Jakarta Composite Index (JCI) target to 6,900 after the election, from the previous 6,500.

But due to pressure in commodity markets, “the rally in equity will be limited to interest-rate sensitive sectors since Bank Indonesia will have a bigger chance of lowering interest rates,” said Budi Hikmat, director at fund manager Bahana TWC Investment Management in Jakarta.

The Jakarta stock index has gained 4.6 percent so far this year, but has lagged most of its Southeast Asian peers. Foreign buyers purchased a net $979.40 million of shares after offloading $3.6 billion last year.

International investors are net buyers of Indonesian bonds, holding 38.5 percent of government bonds as of April 15, according to Finance Ministry data.

Onshore markets were closed on Wednesday due to the election.

Offshore one year non-deliverable rupiah forwards dipped to their seven-week low on Wednesday, pointing to a firmer currency, after unofficial quick counts gave Jokowi a comfortable lead.

Futures later gave up some of those gains after challenger Prabowo claimed victory, despite polls saying he lagged the incumbent by 7.1 to 11.6 percentage points.

The ruling coalition that backs Jokowi is poised to win over half of the parliamentary seats, pollsters said on Wednesday.

The margin appears robust enough to prevent any legal challenges from Prabowo to become a long running problem,” said Matt Gertken, geopolitical strategist at BCA Research in Montreal.

Mohamed Faiz Nagutha, a Singapore-based economist at Bank of America Merill Lynch, warned the dispute about the result could drag on to June.

But “once the political noises fade, markets will likely be driven by macroeconomic fundamentals and progress on structural reforms,” he wrote in a note on Thursday.

The official election results will not be published until May.

$1 = 14,080.0000 rupiah Reporting by Noah Sin in Hong Kong and Fransiska Nangoy in Jakarta; Editing by Kim Coghill

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