Following the resignation of the Finance Minister Sri Mulyani Indrawati last week, we’ve separately published a special edition of Politics Monday. In summary, we’ve argued that:
· Sri’s resignation is indeed a significant blow to Indonesia and to reform prospects.
· The ball is in the President’s court in determining the direction of reform.
· The role of the Bakrie family in the new power structure is still uncertain.
· The race to succeed Sri is still wide open.
Please let us know if you’d like this note.
Instead, we focus here on how the market has reacted to the news.
1. The double whammy: Sri v. Greece
The news of Sri’s resignation came on Wednesday morning, just before the Indonesian market opened and just as the TV footage of rioting Greeks was causing a mini-tsunami in world markets.
Accordingly, it is useful to try and split out the relative weight of the two effects:
Market performance post Greece/Sri effects (5-7 May)
JCI (IDR): -7.42%
JCI (USD): -9.96%
MSCI Asia Ex (USD): -5.42%
Of the 9.96% USD decline of the JCI over the three trading days since Sri’s resignation, 5.42% is accounted for by broader regional index declines (‘the Greece effect’). A further 2.5% is due to weakening IDR (we assume 1.25% for each of the Greece and Sri effects). This implies that the Sri effect is 9.96%-5.42%-1.25% = 3.3%.
Our conclusion: Sri is worth more than 3.3%. The other shoe has yet to drop: Sri’s departure is not yet reflected in the JCI index level.
2. Market turnover
Market turnover has not risen dramatically, despite the Greece/Sri effects:
Average daily market turnover IDR, trillion
Pre Greece/Sri (26 April-4 May): 4.69
Post Greece/Sri (5-7 May): 5.00
Increase 6.6%
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