Despite the "political year" several Indonesia-based securities firms expect to see big appetite from local companies to conduct an initial public offering (IPO) on the Indonesia Stock Exchange in 2018. In 2018, Indonesia will see a new round of regional elections (to determine local leaders) across the country. These elections are likely to trigger new political tensions, particularly as the country's legislative and presidential elections are to be held the following year.
Ahead of Indonesia's legislative and presidential elections in 2019, political tensions are expected to rise in Indonesia in 2018 as the battle for the presidential seat may become another tight race between Joko Widodo and Prabowo Subianto. Moreover, we have seen that controversial former army general Subianto (successfully) seeks support from the country's hardline Muslim groups (even though, paradoxically, Subianto is backed by his Christian family members and Christian businessmen).
But despite these rising political and religious tensions, securities companies are optimistic that there will be plenty of demand for IPOs as Indonesia's economic growth is expected to accelerate next year. Indeed, historically, there seems to be a stronger correlation between the direction of Indonesia's economic growth and the number of IPOs on the Indonesia Stock Exchange than there is between national elections and the number of IPOs.
Bahana Sekuritas expects to see Indonesia's economic growth accelerating in 2018 because domestic consumption should rise amid the new round of local elections as well as the 2018 Asian Games (organized by Indonesia). Therefore, the central government put its target for economic growth in the 2018 State Budget at 5.4 percent (y/y). Meanwhile, rising domestic consumption will make local companies wanting to anticipate rising demand. An IPO is one of the strategies for companies to gather funds for further business expansion.
Mandiri Sekuritas expects to see many IPOs in the first half of 2018 as that means these companies have somewhat avoided the political turmoil that is assumed to heighten in the second half of the year.