After significant selloffs in the first half of 2026, the Indonesian equity market has recovered substantially in July, with the Jakarta Composite Index (JCI) up +9.4% MoM (-29% YTD) on stabilizing currency, easing fiscal risk, and improving liquidity.

Last month, we noted a tactical opportunity following coordinated policy responses from the government, implying that 5,300 for JCI and 18,000 for USD/IDR are the levels that policymakers may not be comfortable with.

Recall the policies included hiking interest rates during an off-cycle, signaling potential stock purchases by the country’s sovereign wealth fund (Danantara) and the Social Security Agency (BPJS), and reducing unproductive fiscal spending.

Although sentiment remained muted afterward, investors are now beginning to turn more hopeful as liquidity starts to return, with net foreign inflows reaching IDR 442 billion last week.

S&P’s decision to keep Indonesia’s sovereign debt rating at investment grade with a stable outlook, alongside the updated High Shareholding Concentration (HSC) list as part of broader market reform, also helped improve sentiment.

Nevertheless, the technical setup for JCI looks supportive after the index traded sideways between 5,500 and 6,200 over the past month.

We expect JCI to breakout of this range in the near term, driven by more inflows from light positioning, a stabilizing Rupiah, and an improving earnings outlook.

Algo Research Alpha tactical opportunities: AMMN, TPIA, ANTM, INCO, BDMN, BRPT, and ENRG. Government interventionist policies remain the biggest downside risks for Indonesian equities, especially among commodity stocks.

After so much backlash recently following the equity market and currency underperformances, the Indonesian government is finally starting to pay attention.

Whereby, recent coordinated policy responses suggest that 5,300 for IHSG and 18,000 for USD/IDR are the levels that policymakers may not be comfortable with.

Here’s what they did this week:

1. Hiking interest rate by 25bps to 5.5% during an off-cycle to defend Rupiah.

2. Signalling potential stock purchases by Danantara and BPJS.

3. Reaffirming no changes to strategic policies in the commodity sector.

4. Increasing non-subsidized fuel prices & cutting MBG budget to ease fiscal.

5. Normalizing sovereign bond yields across the curve.

6. Opening the door for a cabinet reshuffling in key economic positions.

The result? After consecutive weaknesses, the Indonesian equity market finally rebounded, surging +7.6% yesterday to mark its best daily gain since Mar-20.

IHSG’s positive daily return also occurred despite net foreign outflows of IDR 2.6 trillion in the regular market, implying that domestic investors may have capitulated and are now the price-makers, at least for now.

We expect IHSG to trade sideways within the 5,500 to 6,200 range with volatile movements as investors digest policy direction, economic slowdown, and market-specific factors (i.e. MSCI and S&P).

Nevertheless, the risk-reward looks measured and represents opportunities. Algo Research Alpha: AMMN, TPIA, INCO, ANTM, PGAS, MEDC, BDMN.

Indonesia is embarking on a new path, implementing two of the most significant trade policies in the past decades that could have a profound impact on the economy.

The first tightens a rule that has existed since 2011, where natural-resource exporters must bring 100% of their proceeds into Indonesia’s financial system and park them exclusively at state-owned enterprises (SOE) banks.

The second is a structurally new scheme where exports of coal, CPO, and ferro-alloy must flow through a single state-owned intermediary called Danantara Sumberdaya Indonesia (DSI).

The government’s stated rationales are simple:

• Indonesia has an inherent problem where it generates significant USD export proceeds, but those dollars do not stay onshore long enough to support the currency.

• The problem is also amplified by under-invoicing practice where exporters deliberately state lower values on shipping documents than the actual price received.

Thus, both policies are designed to fix those problems where the FX repatriation is done through DHE while the DSI export centralization is aimed to solve under-invoicing.

Accordingly, Indonesia will face its first real test of whether its commodity export infrastructure can absorb this level of new state intermediation without both global and domestic supply-side disruptions.

Rupiah has reached a record low of 17,700/USD (-6% YTD) as the currency faces intensifying selling pressure driven by both global and country-specific factors, including:

Energy shock (oil prices >$100/barrel), MSCI index rebalancing that reduces country weight to around 0.5% (from 0.7%), surging import costs (oil, heavy equipment), and fiscal capacity constraints amid a spending surge (implied FY26 budget deficit/GDP >3%).

Abrupt policy changes have amplified the selloff as well, such as decreasing production quotas (nickel & coal), increasing royalty rates for metal mining (now delayed), weakening rule of law, and restricting private-sector growth through bureaucracy.

Poor communication from policymakers across fiscal and monetary institutions has also created anxiety, as they appear to ignore the risks and downplay the need for proactive approaches to prevent a potential economic downturn.

The Indonesian President also announced a shocking new regulation this week to centralize export processes of strategic sectors such as CPO, coal and ferro-alloys through Danantara that will be fully implemented by next year.

Ultimately, the recent currency weakness seems to be primarily driven by uncertain fiscal policy direction and a lack of credibility from President Prabowo’s administration, which are driving the outflows from Indonesia.

Nevertheless, the Indonesian central bank has exhausted pretty much all its ammunition to defend the currency by issuing Bank Indonesia Rupiah Securities (SRBI) and burning through foreign exchange reserves.

The last “monetary bullet” was fired yesterday with a larger-than-expected interest rate hike of 50bps to 5.25%, which came above the majority of estimates. USD/IDR fell to 17,600 on the news, but it is now trading back at around 17,700.

Accordingly, the outflows are mostly driven by fiscal uncertainty and distrust in the central government, so no matter how much effort is made from a monetary policy perspective, it will not stop the depreciation of the Rupiah.

For the Rupiah to strengthen, the central government must reverse its fiscal path, but this is very unlikely for now. One external factor that could help is de-escalation in the Middle East. Yet, the damage to the oil market is already done, and high oil prices are likely here to stay.

Fun fact: The combined net foreign inflows from Indonesian equity and bond markets (SRBI + SBN) reached IDR 25 trillion this year, suggesting that most of the capital flight come from domestic.

Will they care about an interest rate increase? Unlikely

During the Plenary Session of the House of Representatives (DPR RI) in May 2026, Indonesian President Prabowo Subianto laid out the Macroeconomic Framework and Fiscal Policy Principles (KEM PPKF) for the 2027 State Budget (APBN).

2027 economic assumption

The Indonesian government targets state revenue at 11.82–12.40% of GDP, while state expenditure is expected at 13.62–14.80% of GDP. GDP growth is projected at 5.8–6.5% next year, with the government aiming to accelerate growth toward 8% by 2029. Based on these assumptions range:

• Under a growth scenario of +5.8% YoY and low-end of the range, this implies IDR 3,140 trillion (-0.4% YoY) and IDR 3,618 trillion (-5.9% YoY) in government revenue and spending, respectively, with the budget deficit at -1.8% of GDP.

• Under a growth scenario of +6.5% YoY and high-end of the range, it expects IDR 3,316 trillion (+5.1% YoY) and IDR 3,957 trillion (+2.9% YoY) in total revenue and spending, respectively, with the budget deficit at -2.4% of GDP.

• In both cases, the government says fiscal discipline will be strictly maintained to support strategic programs while keeping financing prudent, with inflation expected to stay within 1.5–3.5% and the unemployment rate at 4.3%-4.87%.

• Moreover, the 10-year government bond yield is estimated at 6.5–7.3%, while the USD/IDR exchange rate is assumed at 16,800–17,500.

• For energy, the Indonesian Crude Price (ICP) is projected at $70–95/barrel, with oil lifting targeted at 602,000–615,000 bpd and gas lifting at 934,000–977,000 boepd.

As always, the President also highlighted the achievements of the most prioritized program, the Free Nutritious Meal (MBG), which has distributed 8.3 billion portions since its inception.

• The program now serves 62.4 million meals daily, including 374,175 schools receiving benefits. Around 1.28 million workers have reportedly been employed as part of the program.

• There are now 28,913 SPPG kitchens and 28,390 BGN (National Nutrition Agency) partners operating, involving 140,289 suppliers, including MSMEs, co-ops, and village enterprises.

• The initiative has also injected around IDR 45 million per kitchen per day into village economies, translating to IDR 10.8 billion per kitchen annually, which is said to drive grassroots empowerment and localized job creation.

The Indonesian Ministry of Energy and Mineral Resources (ESDM) is proposing a sweeping upward revision to mineral royalty tariffs that were only recently enacted under Government Regulation (PP) 19/2025.

The proposed structure raises rates across copper, gold, silver, nickel ore, tin, chromium by-products, and cobalt, while expanding price brackets to capture upside from elevated commodity prices.

This effectively converts royalties into a windfall tax mechanism, layering progressive rates onto the highest price tiers and introducing new commodities such as iron derivatives.

While the stated objective is to align royalties with current price dynamics, the underlying motive is clearly fiscal.

• The Prabowo administration faces a widening budget deficit, rising energy subsidies, and an aggressive spending agenda, making commodity revenue one of the few politically feasible sources of incremental income.

However, the trade-off is that miners will absorb meaningful margin compression and are likely to redirect capex toward overseas assets, where the regulatory environment is materially more predictable.

Once perceived as the safest and highest-quality banking stock in Indonesia, BBCA’s share price has significantly underperformed, declining from its all-time high of IDR 10,950/share in 4Q24 to now trading at IDR 6,000/share, down around -45%.

Over the same period, it has lost around IDR 600 trillion in market capitalization and experienced a substantial valuation de-rating, where its price-to-book value (PBV) now stands at 2.9x (-2 standard deviation), the lowest level in more than a decade.

Coincidentally, the underperformance began shortly after President Prabowo was inaugurated, raising the question of whether the de-rating stems from company-specific factors or higher country-risk in Indonesia.

• It is likely a combination of both, as new government policies are largely unfavorable for financial markets and the broader economy, leading to weaker earnings growth for BBCA, thereby fueling selling pressure, particularly from foreign investors.

Nevertheless, the downtrend has been attributed to a combination of slowing earnings growth, rising country-risk premium, a weakening macro outlook, and global index rebalancing.

United States and Iran have made substantial attempts to de-escalate the war by announcing a ceasefire agreement, which is reportedly extended from 2-weeks to 4-weeks to allow more time for negotiations.

However, as of the time of writing, no formal confirmation has been announced by either government, although the United States Press Secretary reaffirmed that discussions are ongoing and “productive.”

Meanwhile, news outlets have reported that diplomatic channels are being explored to facilitate a second round of negotiations between the United States and Iran, after both sides failed to secure a more permanent peace deal during their meeting last week.

Notably, the deadline for the 2-weeks ceasefire agreement is set to expire on 22nd of April.

Additionally, following the ceasefire announcement, oil prices have eased to around $90-95/barrel for both Brent and WTI futures, as the market remains hopeful that there may be “light at the end of the tunnel.”

However, it remains the case that the Strait of Hormuz is still effectively shut, and oil flows have not improved meaningfully since the ceasefire announcement, which risks prolonging the supply shock in energy markets.

In fact, the relative calm in oil futures appears to underestimate the physical strain currently faced by many countries, especially since global oil inventories have largely been depleted to cushion the supply shock so far.

One month after the US and Israel launched war on Iran, the global economy is now facing an energy shock driven by severe supply-chain disruptions and rising oil and gas prices.

The head of the International Energy Agency warned that the current energy crisis is worse than those experienced in 1973, 1979 and 2022 combined, especially in terms of lost in production capacity.

At least 40 energy facilities in the Middle East have been physically damaged in the conflict, including 2.5 million barrels per day of oil production shut-ins, which will likely take years to rebuild.

Asia is the most impacted, as more than 80% of crude oil transported via the Strait of Hormuz mainly flows to China, India, Japan, Thailand, Singapore and South Korea.

In total, around 20% of global oil and gas production is affected. Other key commodities such as fertilizers, LNG, sulphur, aluminium and helium are also disrupted.

Meanwhile, contrary to policymakers across Asia who are preparing for worst case scenarios, the Indonesian government continues to downplay these significant downside risks.

• The Indonesian Minister of Energy and Minerals states that the country is well equipped as a net energy exporter and will not face fuel shortages despite being in net deficit position.

• The Minister of Finance expects oil price to average $74 versus $70 budget assumption, which he think can be absorbed through cost savings, despite forward curves implying a minimum of $85 by end of 2026.

However, Indonesian households are likely to be the most affected by rising oil prices, where Bloomberg estimates that spending on oil for transportation and residential is at 5.6% of total consumption if oil prices average $100.

This figure is likely much higher for Indonesian lower-income families, which could reach more than 30% of total.

The shock is beginning to hit Indonesian industrial sectors too including petrochemical (Chandra Asri declared force majeure), nickel (75% of sulphur supply from the Middle East), airlines (rising costs from jet fuel), and agriculture (20-30% increase in pesticide prices).

Given the signs of prolonged supply-chain disruption, the lack of cohesive planning from the Indonesian government is concerning, as it creates room for ineffective and reactive policies if the situation becomes much worse.

“Nobody leaves a negotiation happy” is a simple phrase often used to describe how a fair outcome typically requires both sides to give up or compromise something they initially wanted.

However, the latest Agreement on Reciprocal Trade (ART) signed on 19th February 2026 significantly favors the United States while placing Indonesia in a lower economic position, particularly in terms of market access and trade leverage.

It is worth noting that the U.S. Supreme Court recently invalidated President Trump’s tariffs under the emergency powers statute IEEPA, which prompted the U.S. government to introduce a new 10% import tax under Section 122.

• Under Section 122, tariffs are capped at maximum 15% and can only be imposed for 150 days, requiring congressional approval to remain in effect longer.

• Furthermore, the U.S. administration is likely to explore other legal channels to impose tariffs, although this creates greater uncertainty with trading partners.

Nevertheless, the base case remains that the majority of the trade commitments signed between the United States and Indonesia will be enforced, with only few possible adjustments once domestic legal procedures are completed.

Despite outflows following downgrades on Indonesia by global institutions, Rupiah has managed to trade around 16,800 against USD, holding below the 17,000 psychological threshold largely due to central bank support.

However, among comparable peers in Asia, Rupiah is the worst performing currency against USD this year, depreciating -1.3% and down -2.9% over the past one year. It has also weakened by -46% over the past twenty years, only better than Indian Rupee at -55%.

Inherently, there is nothing unusual about a weakening currency, especially for a net exporting country, as long as it is supported by structural growth engines that increase national income to offset the loss in currency value.

The issue with Indonesia is the absence of such structural foundations, as policymakers tend to focus on cyclical growth that typically lasts only 5 years or within the duration of the sitting President.

If a currency reflects economic strength and credibility, Rupiah’s persistent weakness suggests that Indonesia is perceived as relatively less attractive compared to its regional peers.

Policy developments that are seen as excessively interventionist, yet without concrete long-term growth benefits are spooking investors such as potential takeovers of mining licenses and land seizures under regulatory pretexts.

Concerns on policy credibility have intensified as well, particularly after the President’s nephew was appointed as the Deputy Governor of Bank Indonesia despite having no prior monetary experience. This raises questions about central bank independence.

Consequently, assuming Rupiah depreciates by -4% annually, in line with the past two years average, it could approach 20,000 against USD by 2029, coinciding with the end of President Prabowo’s first term.

All these factors are pushing financial outflows from the country, creating consistent pressure to defend the currency while trade and investment are leaning towards less exports (i.e. domestication) and more imports (i.e. downstreaming).

In the first full week of 2026, retail investors have continued to assert their dominance in the Indonesian stock market after six consecutive months of contributing >50% to the average daily trading value in IHSG.

Data from Stockbit Sekuritas, which has the largest retail investor base in Indonesia, show that the top 25% of its clients booked more than +34% portfolio returns in 2025, outperforming IHSG’s gain of +22%.

Additionally, the top 10% recorded returns of more than +104%, while the top 5% secured returns exceeding +200% last year; indicating that retail investors comfortably outperformed the majority of mutual fund performances in 2025.

Consequently, despite the common narrative that individual investors typically lag institutional investors, this market cycle appears to have positioned them as the new smart money.

Whether this trend is sustainable remains uncertain. However, judging from historical periods such as in 2020 to 2022, this phenomenon is likely cyclical in nature.

Nevertheless, as retail investors are currently the key force moving IHSG, identifying their stock preferences can help gauge market sentiment, flow direction, and potentially signal cycle peaks and troughs.

The Indonesian government has recently released several closely watched economic indicators, including the country’s 3Q25 GDP growth and inflation rate as of Oct-25.

We observe an interesting pattern where household consumption growth has decelerated, yet prices have continued to climb meaningfully, raising the question of whether Indonesia is experiencing stagflation risks.

Similar concerns were flagged in 2022–2023 when global policy divergence (i.e. Russia–Ukraine war) drove sharp increases in commodity prices such as oil, coal, and nickel.

At that time, however, global supply-side risks eased relatively quickly, while domestic demand remained resilient as household incomes were stable and the government effectively managed inflation.

Afterward, Indonesia faced deflationary pressure in 2024 because of rising job losses, the spread of online gambling, a pause in capital expenditure, falling exports, and political transition, leading to a steep decline in demand.

Nevertheless, despite expansionary policy efforts over the past year, softening demand has persisted in 2025 as income levels have not improved.

Now, the government is banking on a final-quarter fiscal push like social assistance and MSME credit disbursements to ensure that the +5.2% 2025 full year GDP growth target is achieved.

However, this appears overly optimistic, as it would require 4Q25 growth of +5.76% YoY, implying a massive boost not only to public spending but also to private consumption, investment, and exports.

Ultimately, the structural economic issues of weakening consumption and decreasing income, combined with increasing price levels, are likely to remain unless major policy reforms are implemented.

In the past one year, the Indonesian rupiah (IDR) has been the worst-performing currency among major ASEAN economies, depreciating by -6.3% against USD.

Even though the weakness in IDR is not entirely unique, particularly after the US trade war policy in Apr-25, several domestic issues have driven investors to sell the rupiah and move toward more stable currencies.

These include: 1). Sluggish growth with limited catalysts, 2). Unproductive policies combined with a high debt burden, and 3). An uncertain political landscape, which are eroding confidence and stability of the rupiah.

Consequently, Bank Indonesia (BI) has been defending the currency throughout 2025, as reflected in the sharp drop in Indonesia’s foreign exchange reserves, down from $156 billion in Dec-24 to $149 billion in Sep-25.

Nevertheless, IDR is now trading around 16,600 against USD, and only 2.4% away from the “critical” level of 17,000. If that threshold is broken sustainably, it could trigger further depreciation and weigh on economic growth.

Morgan Stanley Capital International (MSCI) is currently holding a consultation regarding proposed changes to its estimated free float calculations for specific markets, including Indonesia.

MSCI publishes benchmark indexes covering various markets and company sizes such as Global ACWI, Emerging Markets, Frontier Markets, and Small Cap, which are widely tracked by institutional investors globally.

In fact, many mutual funds and ETFs (exchange traded funds) use MSCI indexes as benchmarks to measure performances, with reportedly over $16.5 trillion in total assets tied to the indexes.

Gold has performed exceptionally well in 2025. The yellow precious metal has outpaced many asset classes globally, surging around +60% this year to surpass the $4,000 mark for the first time in history.

So far, the 8th consecutive quarterly gain in gold prices marks the third-longest winning streak on record, trailing only the 12-quarter and 9-quarter rallies in 2009–2011 and 2019–2020, respectively.

A prolonged US government shutdown and opportunistic buying from investors (i.e., ETFs) have added another layer of momentum for gold this month, pushing its price to around $4,200.

However, as gold is currently in overbought territory with a strong technical resistance level at $4,300, potential downside corrections and a pause in momentum seem likely in the near term.

Nevertheless, structural expansionary fiscal & monetary policies globally, policy decoupling and political divergence (i.e. US-led trade war) remain supportive for gold over the long run.

In turn, these factors have fuelled currency debasement, diversification from USD and stagflation risks, which are also partly influenced by the debt-fuelled government spending on unproductive assets.

The Indonesian equity market declined by -4.1% WoW to close at 7,915 after four consecutive weeks of trading near its strong technical resistance level of around 8,200.

Conglomerate complex such as BRPT (-14.7% WoW), MLPT (-37.5% WoW), DSSA (-6.6% WoW), and TPIA (-14.5% WoW) led the selloffs, yet these were minor corrections relative to their strong outperformance so far this year.

This marked the second-worst weekly performance in 2025, behind the -5.2% WoW drawdown seen in Feb-25. Even so, IHSG has rallied substantially by +33% since its low in Apr-25, bringing its year-to-date (YTD) return to +12%.

As reiterated over the past month, we remain “cautious” on IHSG and now expect a potential tactical rotation to defensives, as market participants are likely to play it “safe” and secure profits before the end of the year.

Thus, fundamental stocks (i.e. banks) have attractive risk-reward and entry points at these levels following meaningful YTD underperformance, especially as foreign outflows have likely subsided for now.

Short-term sentiment for fundamental stocks is also positive, supported by new expansionary fiscal policy (i.e. cash handouts in 4Q25), looser monetary conditions, and news of Danantara’s possible entry to the equity market.

Nevertheless, 2026 earnings guidance will be crucial to determine whether these tactical opportunities can turn into momentum-driven upside for large-cap fundamental stocks.

If the overall guidance is weaker than expected and growth catalysts are absent, sideways movements could persist.

Furthermore, the next cycle in the conglomerate complex largely depends on whether a few of them, like BREN and BRMS, will be included in the MSCI index next month, barring any major downside risks.

Since its IPO in July 2025, Chandra Daya Investasi (CDIA) has recorded an exceptional share price return of more than +900%, boosting its market capitalization from nearly IDR 24 trillion to around IDR 240 trillion.

As of time of writing, CDIA is the 14th largest company in the Indonesian equity market and the best-performing stock in 2025 within the Barito Group conglomerate universe, which includes BREN, TPIA, BRPT, PTRO, and CUAN.

Recently, the stock has seen an acceleration in trading value and share price performance, driven by positive surge in earnings growth and potential corporate actions in the medium term.

Investors and traders are also anticipating a possible MSCI inclusion for CDIA, though this is more likely in the long term (earliest by 2026) as the company has only been publicly traded for a few months.

Source: Algo Research, Company Data, IDX

Astra International (ASII) is not just a conglomerate but a reflection of Indonesia’s economic and industrial transformations, with all its highs and lows, triumphs and failures over the past 68 years.

Founded in 1957, ASII has lived through economic turmoil, political upheavals, policy shifts, and financial crises in Indonesia, shaping itself into one of the country’s most important companies.

Its history is also inseparable from the sacrifices of its founders, particularly William Soeryadjaya, whose decisions determined Astra’s fate over the following decades.

This is a story of how ASII went from a family-owned to a foreign-owned company, and how many Indonesian conglomerates became shareholders before it was eventually acquired by Jardine Group.

After keeping interest rates on hold for the past 9 months, the US Federal Reserve finally decided to reduce the federal funds rate (FFR) by 25bps to a 4–4.25% range this week.

This decision was largely anticipated by market participants as the US central bank has been signaling its intent to resume easing since the Jackson Hole conference last month.

Additionally, the Fed’s latest “dot-plot” projects two more 25bps rate cuts in 2025, and one 25bps cut each in 2026 and 2027, bringing the FFR to 3–3.25%.

The initial market reactions were mostly muted, with US equities, gold, and bond prices closing lower after the announcement, as investors do not expect the Fed to embark on an aggressive easing cycle.

However, given the significant downward revisions in US payroll data this year, the Fed’s latest move could be perceived as “too late” by investors and even by some within the government.

Particularly, US President Donald Trump and Treasury Secretary Scott Bessent have repeatedly voiced concerns that the Fed is not moving quickly enough to loosen policy amid a deteriorating labor market.

Thus, it appears that the future of the US central bank is increasingly “political” and “dependent” on central government pressure, especially as President Trump is very likely to appoint a new Fed Chair in 2026.

Nevertheless, the Fed is the last among major central banks (excluding BoJ) to restart monetary policy easing.