After years of no major terrorism attack in Indonesia, series of explosions happened yesterday in Thamrin Street area, one of the most prime areas in Jakarta for business offices and shopping malls. The location also relatively near with some foreign embassies as well as the UN building. The multiple blast destroyed nearby Police Station as well as Starbuck outlet. Based on media report, there were seven casualties that include five suspected attackers, with 20 people were reported wounded. Based on media report, yesterday's attack was linked to Islamic State.
It appears that yesterday blasts would be the first major terrorism act in Indonesia post the bombing in JW Marriot and Ritz-Carlton hotel back in 2009, which took 9 casualties with more than 50 people injured. We strongly believe that the terrorism is not specific risk for Indonesia, and more importantly, should not derail the potential economic improvement over the medium to longer term. The impact, in our view, will be transitory and is unlikely to have LT reverberation. On the short term, however, there will be negative impact to selective sector especially for retail and transportation sector on the back of diminishing traffic to shopping mall and restaurant. Business and tourism arrival to Indonesia would also be affected on the possibility of travel warning issuance post the blast.
The company which will be affected would be: Mitra Adiperkasa (MAPI IJ) and Ace Hardware (ACES IJ) - as their outlets mostly located in shopping mall; Blue Bird (BIRD IJ) - for potential slower activity from business traveler and tourism to Jakarta; and Garuda Indonesia (GIAA) - less visitor to Jakarta/Indonesia. To lesser extent, there could also be negative sentiment on several property companies which have shopping mall portfolio such as Agung Podomoro Land (APLN IJ), Pakuwon (PWON IJ) and Ciputra Development (CTRA IJ),
From 7 terrorism attacks since 2000, after the initial knee-jerk reaction, market mostly recovered relatively quickly, and in fact registered 9% to 19% positive return one month post the incident. We believe that the Indonesian Force will enforce stringent control and would undoubtedly intensify their counter terrorism intelligence to prevent further attack in order to restore stability. Yesterday blast would also overshadow one of the most important positive catalysts for the market that is the 25 bps cut on interest rate by Central Bank. The rate cut would be positive for the market, and it could be seen as the presage for more relaxation policy from central bank going forward. We believe there will be another 25 bps cut later part of this year, which will set the stage for a more favorable environment for economy growth, especially as BI still predict that the economy did not improve significantly in 4Q15, despite various fiscal stimuli and macro prudential policy relaxation.
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