JPMorgan upgrades Indonesia, lifting call that riled Jakarta

A highway stands under construction in Jakarta

JPMorgan Chase & Co. upgraded its assessment of the Indonesian stock market, reversing an earlier bearish call that prompted Jakarta to stop doing business with the U.S. bank.

The bank’s analysts raised their “tactical” view of Indonesian equities one level to “neutral” in a report dated yesterday, saying volatility in emerging-market bonds following Donald Trump’s U.S. election victory in November should now subside. The upgrade came two weeks after Indonesia’s government cut business ties with JPMorgan, citing a two-notch equities downgrade by the bank in November.

“Our tactical downgrade two months ago was driven by the risk of Indonesia underperforming the Asia Pacific ex Japan and EM indices as investors de-risked,” analysts led by Adrian Mowat said. “Redemption and bond volatility risks have now played out, in our view.”

Indonesia welcomed the bank’s new assessment. The neutral recommendation is more in line with fundamentals, Coordinating Minister for Economic Affairs Darmin Nasution told reporters in Jakarta yesterday. The finance ministry had earlier said it would stop using JPMorgan as a primary dealer and an underwriter for sovereign bonds.

JPMorgan said in an e-mail that its research views are independent and yesterday’s report, like previous ones, “is no different.”

Foreign investors sold a net USD2.8 billion of Indonesian stocks and bonds last quarter as emerging-market assets retreated following Trump’s victory. That drove the rupiah lower, forcing policy makers to intervene to stabilize the currency.

Last week, Indonesia widened its campaign against negative research by ordering all primary dealers in Indonesian bonds to maintain relations with the government “based on professionalism, integrity and avoiding conflicts of interest.” Firms that fail to comply with the rule, which took effect on Dec. 30, risk losing their dealership licenses, the government said.

Global banks that are primary dealers in Indonesia’s bonds include Standard Chartered Plc, HSBC Holdings Plc, Deutsche Bank AG and Citigroup Inc. Chanyaporn Chanjaroen, Bloomberg