UPDATE 1-Indonesian shares, rupiah rise as markets bet on Jokowi presidency
(Updates with rupiah, fall in shares linked to Prabowo supporters, c. bank meeting)
By Fransiska Nangoy and Eveline Danubrata
JAKARTA, July 10 (Reuters) - Indonesian shares and the rupiah rose on Thursday on the prospect of a presidential election victory for Jakarta Governor Joko "Jokowi" Widodo, widely seen as more business-friendly than his rival, former general Prabowo Subianto.
Both claimed victory after Wednesday's vote and analysts warned there could be a drawn-out constitutional battle to decide who will lead the world's third-largest democracy and Southeast Asia's biggest economy.
Even so, the Jakarta stock exchange rose as much as 2.8 percent to 5,165.42, the highest since May 30 last year, before ending up 1.5 percent. The rupiah hit a seven-week high.
Both candidates favour a nationalist agenda, underpinned by popular perceptions the economy has for too long depended on selling off its vast natural resources cheaply to foreign buyers.
But Prabowo is seen as more fiercely nationalistic, while Jokowi is seen as a more capable, hands-on administrator.
"Investors are buying on the hope that some structural barriers that have been a real problem over the last few years would begin to diminish after the elections. A Jokowi victory is expected to be good for the economy," Ciptadana Securities said in a report.
"He has talked about economic reform, cutting red tape and corruption during the election campaign and if he carries it through, most of the economy should benefit."
Several respected, private "quick counts" had Jokowi as the winner. The official result is due around July 22.
Banks, infrastructure and property stocks were some of the biggest gainers on Thursday as they are expected to benefit from Jokowi's focus on these sectors.
Property developer PT Lippo Karawaci Tbk surged 6.9 percent, while PT Bank Mandiri Tbk, Indonesia's biggest lender by assets, rose 3.2 percent and state construction firm PT Wijaya Karya Tbk 2.7 percent.
Shares in companies controlled by Prabowo's supporters underperformed the market.
Heavily indebted coal miner PT Bumi Resources Tbk, part of the Bakrie Group, dropped as much as 5 percent. Its media arm, Visi Media Asia, plunged as much as 7.5 percent.
Shares in several companies in the MNC Group, led by tycoon and Prabowo supporter Hary Tanoesoedibjo, fell as much as 6.6 percent although some pared their losses in late trading.
At a routine central bank policy meeting on Thursday, Bank Indonesia kept its main benchmark rate steady at 7.5 percent. It said its decision was consistent with efforts to limit inflation to around 4.5 percent this year and 4 percent next year, and to improve the current account balance.
HOSTAGE TO POLITICS
Indonesian President Susilo Bambang Yudhoyono urged the two candidates to keep their supporters in check during what will be an agonising two-week wait for an official result.
"With both camps declaring victory, the market could still be held hostage by politics at least through July 22," said Harry Su, head of research at Bahana Securities in Jakarta.
And DBS Group Research cautioned that the real test would begin when the new president takes office in October.
"A fragmented parliament is a dominant feature of domestic politics, which has made it difficult to push for reforms. On this front, pushing for fuel subsidy reforms is the first key hurdle for the new government," DBS said.
Foreign investors, who own almost 80 percent of the free floating Indonesian stock market, have been buying, although their investments have slowed to a trickle in the past month.
Data from the Indonesia Stock Exchange showed that by Tuesday, foreign investors had invested a net 46.5 trillion rupiah ($4 billion) so far this year.
The rupiah has risen more than 3 percent against the dollar since last week and is now around 11,570 per dollar. Bonds have rallied, too, despite the threat of an imminent rise in administered fuel prices and therefore in policy rates.
Indonesia is heavily dependent on foreign portfolio flows to finance its huge current account deficit and has had several bouts of capital outflows triggered by double-digit inflationary spikes and currency volatility.
The bond market is among the emerging world's highest yielding and foreigners own more than 35 percent of outstanding bonds. That money is at risk if policy rates climb too fast or a rise in U.S. yields causes portfolio outflows from emerging markets. ($1 = 11,570 rupiah) (Editing by Vidya Ranganathan and Alan Raybould)