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Euromoney, January 2017

The Indonesian government’s stoush with JPMorgan over a November equities research note does not reflect well on a government that has otherwise won praise for market reform. Indeed, it seems illogical – based on the facts as presented – that one has to wonder if some deeper and as yet unrevealed reason is to blame.

The background: on November 13, emerging markets equity strategist Adrian Mowat in Hong Kong put out a report on the back of the Trump election win, downgrading Indonesian equities to underweight – and downgrading Turkey and Brazil at the same time. “There are losers from Trumponomics,” Mowat wrote, noting that the spike in volatility that Trump’s victory brought would increase emerging market risk premia and could reverse investment flows. Indonesia, with a particularly high level of foreign ownership of local assets, was considered particularly vulnerable.

The recommendation was, Mowat said, tactical: “We think you will get a better buying opportunity.”

In the bigger scheme of broker research, it was pretty harmless stuff. However, it enraged Indonesia’s ministry of finance sufficiently to remove the bank from its primary dealer list for Indonesian bonds, in effect also removing it from underwriting roles on sovereign issues, including international ones.

It has since become clear this action came from the top, as minister of finance Sri Mulyani Indrawati not only defended the ministry’s action but said she would add a condition to agreements with primary dealers to remind them to ensure their “professionalism, accuracy of information and freedom from conflicts of interest”. She said JPMorgan had “provoked irrational behaviour” by making negative comments at a sensitive time.

If that’s really all there is to it, this is a huge and counter-productive over-reaction. It also makes little sense.

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Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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