Indonesia Leads Asian Gain on DBS, Allianz Vote Bets (Update2)
By Lilian Karunungan, Berni Moestafa and Shanthy Nambiar

May 25 (Bloomberg) -- Indonesia's stocks, bonds and currency may extend the 
biggest gains in Asia this year on prospects President Susilo Bambang Yudhoyono 
will win re- election in July and help sustain economic growth.

The Jakarta Composite index will rise 6 percent to 2,000, after rallying 39 
percent this year, said Cholis Baidowi, who helps oversee the equivalent of 
$244 million in Jakarta at Trimegah Securities, Indonesia's largest publicly 
traded brokerage. ING Groep NV forecasts the rupiah to climb another 10 percent 
against the dollar in 2009, after advancing 7 percent.

Western Asset Management Co., Allianz SE, DBS Asset Management and Fortis 
Investments, which manage a combined $1.7 trillion, say Yudhoyono's success in 
reining in inflation of more than 10 percent and easing a shortage of foreign 
exchange gave them confidence to buy the nation's bonds. His choice of former 
central bank governor Boediono as running mate has reassured them that 
Indonesia will keep expanding as the rest of Southeast Asia's biggest economies 

"The Indonesia story has been a turnaround," said Rajeev de Mello, head of Asia 
bonds in Singapore for Western Asset, which manages $513 billion. He said 
"worries dissipated" on signs Yudhoyono would claim a victory, prompting him to 
buy rupiah assets in the past two months.

The world's most-populous Muslim nation elects its second leader since direct 
elections were introduced five years ago on July 8. A poll conducted by the 
Indonesia Survey Institute between April 27 and May 3 showed 70 percent support 
for Yudhoyono, 59, with Boediono, 66, as his running mate.

Global Recession

The International Monetary Fund predicts Indonesia's $433 billion economy will 
post the only growth this year among Southeast Asia's five-biggest economies. 
The IMF last month forecast a 2.5 percent expansion for the nation, zero growth 
for the Philippines, and contractions for Malaysia, Singapore and Thailand.

The rally may not last as the global recession deepens, said Richard Yetsenga, 
Asia currency strategist in Hong Kong at HSBC Holdings Plc, Europe's biggest 

Foreign direct investment in the country may halve this year from a record 
$14.9 billion in 2008, according the Indonesian Chambers of Commerce, Trade and 

"Indonesia tends to have about the most volatile private capital flows in the 
region," Yetsenga said, predicting the currency will fall to 13,000 by the end 
of next month. The rupiah traded at 10,220 as of 4:48 p.m. in Jakarta, gaining 
0.2 percent from yesterday.

Pro-Growth Policies

Deutsche Bank AG, Germany's biggest bank, joined JPMorgan Chase & Co. in 
advising investors to buy Indonesian stocks on May 18. Overseas investors 
bought $376 million more Indonesian equities than they sold this year.

The rupiah has climbed 29 percent from a decade-low in November at 13,150. It 
will rise 7 percent by the end of 2010 to 9550, according to a Bloomberg News 
survey of 11 analysts, almost double the gain forecast for South Korea's won. 
ING, the largest Dutch financial services company, predicts 9,300 this year.

Indonesia's local-currency debt gained 8.1 percent this year, the best 
performance among 10 Asian government debt indexes compiled by HSBC. Foreign 
holdings of Indonesian bonds climbed to 86 trillion rupiah ($8.4 billion) as of 
May 20 from 80 trillion rupiah on April 3, official figures show.

Turnaround Story

Boediono, who has a Ph.D in economics from the University of Pennsylvania, took 
over as central bank governor in May 2008 following 2-1/2 years as coordinating 
minister for the economy. The inflation rate dropped to 7.3 percent in April, 
from 10.4 percent at the time of his appointment. Six interest-rate cuts since 
the start of December have spurred spending at home.

Yudhoyono, who promoted Boediono on May 15, plans tax breaks for foreign 
investors and loans to the poor to sustain demand.

"The choice of Boediono as vice president is an apolitical and a steady one," 
said Nikhil Srinivasan, who recently added Indonesian debt to the $20 billion 
he oversees as chief investment officer for Asia and the Middle East at 
Munich-based Allianz, Europe's biggest insurer. "The investment community is 
acknowledging the success of Indonesia."

Indonesia raised $3 billion selling dollar-denominated bonds in February, the 
biggest issue by a developing nation this year.

Less Risk

Five-year credit default swaps for Indonesia traded at 317 basis points, down 
from 713 points on March 2. A basis point is 0.01 percentage point. The cost to 
protect $10 million of government debt for five years is equivalent to $317,000 
annually. The swaps pay the buyer face value in exchange for the underlying 
securities if a borrower defaults.

"The risk premium associated with Indonesian assets has dramatically fallen," 
said Didier Lambert, a London-based money manager who helps oversee $2.5 
billion in emerging-market debt at Fortis and has been buying rupiah bonds this 

Indonesia's 10-year local-currency bonds yield 7.8 percentage points more than 
similar-dated U.S. Treasuries, a premium that's narrowed from 10 points in the 
first quarter.

"That we have today a functioning democracy and competent bureaucrats in charge 
of the world's largest Islamic country are the best possible outcomes for 
Indonesia and its neighbors," said Desmond Soon, Singapore-based vice president 
at DBS Asset, which oversees the equivalent of $16 billion and bought 
Indonesia's dollar-denominated bonds this year. 

Kirim email ke