Economic Briefing: Regional Elections an Exercise in Democracy Prior to President Poll

For investors engaging in both portfolio and direct investments are now assessing their strategies on how to surf safely in the political tides and still make handsome gains, as Indonesia enters in another election season, starting from regional campaigns to elect governors and regency heads, parliament members and president election next year.

Investors do agree that political risk customarily looms large whenever the country holds elections. However, there are still plenty of possibilities and opportunities when it comes to investing in a ‘political year’.

For business players, the big challenge is to run the business as usual, to expand or consolidate. Therefore, investors need to have contingency plans to anticipate such situation.

However, during political years, there is nothing more irrational than when a narrative goes wrong, a wide range of opinions erupts, regarding potential market outcomes in a new political environment. The dispersion and polarity of beliefs is perhaps the widest.

Wimboh Santoso, Chairman of Financial Services Authority, believes that the regional elections to elect governors and regency heads across the nation should exert limited impact on the country’s banking industry, including lending activities. He acknowledge, as happened in the past, the regional elections would trigger an increase in consumption related to the campaign and other activities.

Eric Sugandi, an economist from SKHA Institute for Global Competitiveness, predicts there will be only a limited outflow regarding political risk in this year, taking in account external factors such as the U.S’s Federal Reserves (Fed) normalization and tax policy to reduce income tax, which will trigger more volume to flow into the U.S Treasury.

In term of investing in the stock market, analysts said that investors, in particularly conservative ones, are likely opting to choose defensive stocks as these are resilient to any market upheaval. Market players appear to have a common belief that there will always opportunities even in ‘rough seas’, as long as players embrace the proper strategy in seizing opportunities.