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Indonesia: Jokowi win official, equities on lowest valuation since GFC

  • Incumbent President Joko Widodo ("Jokowi") was officially declared the winner of elections with 55.5% of the vote.

  • His coalition has also secured over half of Parliament.

  • Our expectation remains that Indonesia is on track to maintain its steady growth.

Indonesia: Jokowi win official, equities on lowest valuation since GFC
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
21 May 2019
Published by

Incumbent Jokowi confirmed winner

Incumbent President Joko Widodo ("Jokowi") was officially declared the winner of elections on 21 May, with 55.5% of the vote (compared to 53.2% in 2014). His coalition has also secured over half of Parliament. This is positive, but in line with our expectation and opinion polls prior to the 17 April election, as well as the sample vote count immediately after. In a repeat of the 2014 election, challenger Prabowo is likely to mount a legal challenge to the results (he has until the 24 May to do so) but we expect low probability of the result being overturned or serious civic unrest.

More of the same steady macro growth, despite Jokowi's ambition

Our expectation remains that Indonesia is on track to maintain its steady growth, ie c5%, and not the 7% aspired to by Jokowi, because of the structural constraints that inhibit more decisive policy implementation. The patronage network of military, oligarchic and bureaucratic vested interests binds this geographically fragmented and multi-ethnic country, but also inhibits a more vigorous pursuit of structural reform. This is far more important than the two-term limit for the Presidency, which in other countries might unleash a more aggressive, reformist approach to policy.

Equities at lowest valuation since global financial crisis

After an 11% fall in May to date, the MSCI Indonesia equity index is down 5% ytd in total US$ return terms, under-performing MSCI EM and MSCI Asia ex-Japan (both of which are up about 4%). It is on trailing PB of 2.4x, with ROE of 16%; this is a nearly 20% discount to the 5-year median and the lowest multiple since the global financial crisis (GFC) in 2008-09. Forward PE is 14x, with 9% consensus earnings growth. 

Despite recent buffeting from the US-China trade negotiations and Indonesia central bank indications of a shift to rate cuts, FX risks appear moderate. The current account deficit for 2019 and 2020 will average 2.7%, according to IMF forecasts, FX reserves import cover is about 8 months and spot FX is merely a few percent above real effective exchange rate.

While there are countries growing faster in Asia ex-Japan, e.g. Bangladesh and Vietnam, with cheaper FX rates, e.g. Malaysia, or even cheaper equities, e.g. Pakistan and Sri Lanka, there is probably none with the same combination of cheap value, decent growth, reasonably robust FX rate and external debt level and, now, political visibility.

Related reading

Indonesia: Jokowi on track to win, unsurprisingly; steady growth, no more, 17 April 2019

Indonesia: Ongoing steady growth, no more, post-election, 13 February 2019


Indonesia Presidential results since 2004

Source: KPU


Equities valued on trough trailing price/book

Source: Bloomberg