Equity Research

Tuesday, 16 February 2017 Market Outlook

Jakarta Gubernatorial Election

JCI Index (as of Feb 14, 2017) 5,381 The gubernatorial election will go to the second round, a play-off JCI PE Band between Ahok and after Agus Yudhoyono was eliminated in Wednesday’s vote. Political tensions may heighten and polarization in the community may bring up memories of the 2014 presidential elections. As such, if Agus Yudhoyono enters into a coalition with Anies, then Ahok will

face stiff competition. Meanwhile, demonstrations against Ahok may continue with the uncertainty surrounding his court case overhanging the market. held provincial and district elections on 15 February 2015 with a total of 101 elections in 7 provinces, 76 regencies and 18 cities. However, it is the gubernatorial election in Jakarta that will have the biggest impact on Indonesia’s political landscape. Political tensions have heightened in Jakarta, as evident in the rallies held against the incumbent candidate (Ahok) for blasphemy allegations in November and December 2016.

The Jakarta gubernatorial election will go to the second round. Quick counts

done by some TV stations and newspapers show that Ahok and Anies

Baswedan will proceed to the second round since Ahok got 43.1% of the vote,

Anies 39.8% and Agus Yudhoyono 17.1%. The second round election will be held on 19 April 2017. Despite some problems (some people couldn’t vote due to insufficient election forms), the matter could be contained. However, the Election Committee will need to solve the problem and prevent a recurrence

in the second round. We think political tensions will mount, as was the case in the presidential elections in 2014, especially if Agus Yudhoyono enters into a

coalition with Anies.

Why is the Jakarta election very important? The Jakarta election is deemed very important since people believe the will have a high chance to run for presidency in the next presidential election. This is because Joko Widodo was elected president following his election as the governor of Jakarta in 2012. At the same time, Jakarta also has the largest economy

among the provinces in Indonesia. As the capital of Indonesia and the headquarters for most corporations, Jakarta is a very important asset for presidential candidates to demonstrate their administrative and management abilities. Furthermore, Ahok is an ally of Jokowi. Hence, if Jakarta's governor is from the opposition, then President Jokowi will have a rival prior to the 2019 presidential election.

Our take and its impact on the market. The rallies against Ahok and his current court case have worried some foreign investors. However, we have Agus Pramono, CFA seen that the government has been able to handle the problems smoothly. +62 21 2955 5888 ext. 3500 The peaceful rally in December and campaigns by the candidates are evidence [email protected] of this. We should see democracy and the rule of law strengthen in Indonesia. Nevertheless, we cannot rule out the possibility that heightened political

tensions create an overhang in the market.

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What is the impact on the economy? Unlike the presidential election that was held at the national level, we do not see a significant direct correlation between the provinces and district elections and GDP growth of the provinces so far. However, for Jakarta, people think the election will determine infrastructure development in the city and the efficiency of the administration. In the past, Jakarta was always flooded during the seasonal monsoon. With 12 million people and no clear city master plan in the past, traffic has become a huge problem. Hence, the implementation of a master plan and infrastructure development are much needed. Since a lot of projects will require the approval of the Regional House of Representatives (DPRD), the governor must be able to handle any potential problems in order to run the administration efficiently.

Who are the candidates? In Greater Jakarta, the candidates for governor are Agus Harimurti Yudhoyono, Ahok and Anies Baswedan. Agus Yudhoyono is the eldest son of former president (SBY) while Anies Baswedan is a former education minister under the current government. Agus Yudhoyono is backed by the Democrat Party, the (PPP), the (PAN), and the (PKB). Ahok, meanwhile, is supported by PDIP, the Golkar Party, the Hanura Party, and the National Democrats (Nasdem). Anies Baswedan is backed by Gerindra and the Prosperous Justice Party (PKS). The campaign started on 28 October 2016 until 15 February 2017.

Exhibit 1. Quick counts Agus Yudhoyono Basuki Tjahaja Anies Baswedan LSI 16.9 43.2 39.9 Pollmark 18.0 42.3 39.8 SMRC 16.7 43.2 40.1 MetroTV 17.1 43.8 39.1 VoxPol 16.9 42.9 40.2 Average 17.1 43.1 39.8 As of 8.30PM WIB, 15 Feb 2017 Source: KSEI

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