After significant increases this week driven by positive expectations over Indonesia's presidential election, the nation's stocks on Friday slipped along with the rupiah, showing the unsustainability of the recent rally that was deemed as overshooting the reality in the country.
Analysts said that the advance in stock prices and rupiah during the week was a knee-jerk reaction to the presumed victory of business-friendly Joko "Jokowi" Widodo, but could not be justified by the country's and companies' financial fundamentals.
The benchmark stock index, the Jakarta Composite Index (JCI), dove 1.28 per cent to end Friday's trading at 5,032.6, after advancing 3.26 per cent from Monday through Thursday.
"After such a growth, it's only normal that people start to look at the company's fundamentals in making transactional decisions,"
First Asia Capital head David Sutyanto said, adding that the election euphoria had yet to peter out as presidential succession was still in progress.
However, he said the index might dip if presidential candidate Prabowo Subianto made a legal manoeuvre against rival Jokowi to seize victory in the presidential race.
The market might also slump in August once listed companies published their first-half financial results, according to David.
"Under normal conditions, taking macroeconomic conditions and companies' financial performance into account, the index should be at around 4,800," David explained.
Meanwhile, the rupiah dropped to 11,627 per US dollar on Friday from 11,549 on Thursday, according to Bank Indonesia's (BI) mid-rate data.
The nation's currency gained 2.5 per cent this week to 11,585 against the greenback, the best performer among emerging market currencies tracked by Bloomberg.
"Once the election's [euphoria] is over, rupiah movement would be determined by economic fundamentals, such as trade balance, inflation and others," Billie Fuliangsahar, the head of treasury with Rabobank in Jakarta, said by phone on Friday.
The rupiah's strengthening occurred amid the expected deterioration in the country's external balance, which should worry investors.
BI Deputy Governor Perry Warjiyo warned Friday that the current-account deficit "may be higher" than 4 per cent of the gross domestic product (GDP) in the second quarter.
That compares with the historic-high level of 4.4 per cent of GDP that the country posted in the second quarter last year.
The deficit spooked investors and triggered massive capital outflows from Indonesia, causing the rupiah to become Asia's worst performer in 2013 as it depreciated 26 per cent throughout the year.
ANZ Bank currency strategist Khoon Goh said that the rupiah's post-election rally could prove to be temporary, forecasting the rupiah to weaken to 12,000 per dollar by year's end.
As the country still attempted to boost exports and rein in imports, Indonesian policymakers preferred the rupiah to stay between 11,500 and 12,000 per dollar, with BI likely to move to slow the pace of appreciation beyond 11,400, predicted HSBC Bank currency strategist Paul Mackel.
"Beyond this near-term rally, the dollar-rupiah's downside may be limited," Mackel wrote in a research note.
"After all, even with a Jokowi victory, the overall political situation is still not as ideal."
BI would monitor the rupiah's recent strengthening carefully, Perry told reporters after Friday prayers at the central bank's headquarters in Jakarta.
"If there's any movement [in the rupiah] that is away from its fundamentals, then we will enter the intervention market," he said.