JAKARTA: The unexpected decision to put Indonesia’s capital back into a tougher lockdown has surprised analysts and investors and threatens to prolong the recovery of South-East Asia’s largest economy.
With Jakarta accounting for around 20% of the country’s GDP, the decision could cause the Indonesian economy to contract for a third consecutive quarter, upsetting an earlier expectation for a recovery in the tail end of the year.
Jakarta will require non-essential industries to have employees work from home, limit use of public transportation and shut entertainment sites and places of worship from Sept 14.
Hospital capacity in the capital will max out by Sept 17 as coronavirus infections in the metropolitan area surged.
The Jakarta Composite Index plunged as much as 5%, triggering a circuit breaker that will be lifted at 11:06am local time.
While the gauge is set for its steepest drop since March, it’s still up 24% from its March low but down 22% on the year.
“From a public policy perspective, this is a dilemma between choosing science or public health over the economy.
“The decision will be incrementally negative for equities, which generally have some dependence on future earnings.
“The bond market, especially sovereign issuance, will suffer only a limited impact as it has some safe haven features.
“The hope of an upcoming vaccine and possible economic recovery in developed markets will make the fallout from the current curbs less severe than what the country had seen in March, ” said Jeffrosenberg Tan of Sinarmas Sekuritas.
Maybank Kim Eng Isnaputra Iskandar said “I think we will see negative GDP growth in the fourth quarter instead of what many people expected earlier for a recovery in the final three months of 2020.”
The impact on the financial market will be widespread, and at the time like this “investors should not try to catch the falling knife.”
After the initial carnage, some investors may seek refuge in medical stocks, gold miners, tower companies or consumer related names such as tobacco, and telecom stocks.
Stocks that might be less affected by the curbs are Mitra Keluarga, Merdeka Copper Gold, Sarana Menara Nusantara, Tower Bersama, Indofood CBP, Telekomunikasi Indonesia, Unilever, Hanjaya Mandala Sampoerna as well as Gudang Garam. — Bloomberg