Asian Stocks Sliding on US Election Jitters, It's All about Safety
Asian stocks, including Indonesia's benchmark Jakarta Composite Index, continue their persistent slide on Friday (04/11) ahead of the US presidential election on Tuesday 8 November 2016. By 10:45 am local Jakarta time, Indonesian stocks were down 0.29 percent to 5,314.00 points, while the rupiah had depreciated 0.14 percent to IDR 13,093 per US dollar (Bloomberg Dollar Index). Besides the too-close-to-call US election, investors are also keeping an eye on the mass demonstration in Jakarta today.
US Election Jitters
US presidential candidates Hillary Clinton (Democrats) and Donald Trump (Republicans) are engaged in a fierce battle for the presidential seat in the White House. After initially leading comfortably, Clinton saw her lead declining up to the point that most analysts now say that the result is too close to call. It is assumed that the renewed investigation of the FBI into Clinton's email activities is the main reason behind the narrowing gap between both candidates over the past week.
As markets had already priced in a Clinton victory, any sign of the opposite (namely a Trump victory) causes big movements on global financial markets, particularly a flight to safety such as Japan's yen, gold, and government bonds. It is interesting to note that gold - currently priced at USD $1,325 an ounce - could jump to USD $1,400 in case of a Trump victory, according to Wayne Gordon, Executive Director for Commodities and Foreign Exchange at UBS Group AG’s wealth-management unit (in a Bloomberg Television interview).
Clinton is the clear market favorite as her agenda is more-or-less known (she is regarded the status quo) and she has the characteristics of the traditional politician. Trump, on the other hand, has made a number of controversial statements (has a controversial character) and investors and analysts not really know what a Trump victory would imply for the direction of US economic policy, free trade and geopolitics. It is not even known how well Trump can get along with other republicans.
On Friday, Asian stocks are following the performance of US stocks overnight. US stocks retreated for an eighth consecutive day on Thursday (03/11) as investors remain cautious ahead of next week’s US presidential election. Wall Street is now on its longest losing streak since the depths of the financial crisis back in 2008. Overnight, the Dow Jones industrial average fell 0.2 percent, the Standard & Poor’s 500 index lost 0.4 percent, while the Nasdaq Composite lost 0.9 percent.
Japan's Nikkei 225 Index is the weakest-performing benchmark index on Friday as Japanese stocks play catch up after the local bourse was closed for a public holiday on Thursday (03/11). Despite better-than-expected economic data, Japan's stocks are down on yen strength (impacting negatively on export-oriented stocks). The yen is up almost 2 percent against the US dollar so far this month.
Anti-Ahok Demonstration in Jakarta
Meanwhile, between 50,000 and 100,000 protesters are expected to gather on Friday (04/11) in Central Jakarta to express their anger at incumbent Jakarta Governor Basuki Cahaya Purnama (better known as Ahok). This demonstration, organized by a coalition of Islamic groups including hard-line group Islamic Defenders Front (FPI), is held as protesters accuse Ahok (a Christian of Chinese descent) of blasphemy by (mis)quoting Quranic verses during a speech in Kepulauan Seribu in early October.
However, it is assumed that there are political motives behind this demonstration as campaigning for the Jakarta gubernatorial election started last week. In this local race incumbent Governor Ahok is aided by running mate Deputy Governor Djarot Saiful Hidayat. The two other pairs that run for this position are (1) Anies Baswedan and Sandiaga Uno and (2) Agus Harimurti Yudhoyono (son of former president Susilo Bambang Yudhoyono) and Sylviana Murni.
There is concern that violence may erupt at Friday's demonstration, particularly because hard-line group Islamic Defenders Front is involved. Therefore, we advise all foreigners to avoid this demonstration which is expected to last until 18:00 pm local Jakarta time.
Starting from Thursday evening (03/11) protesters started gathering at the Istiqlal Mosque in Central Jakarta. Earlier, an Indonesian police spokesman stated that about 16,000 personnel (police and military) will be deployed to safeguard law and order in Indonesia's capital city on Friday. Investors should monitor developments. In case violence erupts there could be additional pressure on Indonesian stocks.
For information about the background of the anti-Ahok demonstration, read this column:
• Politics of Indonesia: Anti-Ahok Demonstration with Political Motives
This article was written by R.M.A van der Schaar, the Managing Director of Indonesia Investments. He obtained his Masters degree in Southeast Asian Studies from Leiden University (the Netherlands) with a major focus on the society, history and linguistics of Indonesia.
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