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JAKARTA: The unexpected decision to put the Indonesian capital back into a tougher lockdown has surprised analysts and investors and threatens to prolong the recovery of Southeast Asia’s largest economy.
Given that Jakarta accounts for around 20% of the country’s GDP, the decision could cause the Indonesian economy to contract for the third consecutive quarter, upsetting a previous expectation of a recovery at the end of the year.
Jakarta will require non-essential industries to have employees who work from home, limit the use of public transportation, and close entertainment venues and places of worship starting Sept. 14.
Hospital capacity in the capital will peak on September 17 as coronavirus infections increased in the metropolitan area.
The Jakarta Composite Index plunged as much as 5%, triggering a circuit breaker that will be raised at 11:06 am local time.
While the gauge is set for its steepest drop since March, it is still up 24% from its March low, but is down 22% on the year.
“From a public policy perspective, this is a dilemma between choosing science or public health over economics.
“The decision will be increasingly negative for stocks, 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 characteristics.
“The hope of an upcoming vaccine and a possible economic recovery in developed markets will make the consequences of the current restrictions 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 rather than what many people expected earlier for a recovery in the last three months of 2020.”
The impact on the financial market will be widespread and, at a 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 like tobacco and telecommunications stocks.
The stocks that could be least affected by the curbs are Mitra Keluarga, Merdeka Copper Gold, Sarana Menara Nusantara, Tower Bersama, Indofood CBP, Telekomunikasi Indonesia, Unilever, Hanjaya Mandala Sampoerna and Gudang Garam. – Bloomberg
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