Published Sat, Jul 25, 2026 · 04:25 PM
[JAKARTA] A brief rally in Indonesian stocks pushed the benchmark index to the cusp of a bull market, as investors rotated into laggards and concerns over the country’s fiscal health eased.
The Jakarta Composite Index (JCI) closed 0.3 per cent lower on Thursday (Jul 23), erasing gains of as much as 1.9 per cent earlier in the session that had put the benchmark 20 per cent above its early-June low.
Sentiment is on the mend in the world’s worst-performing stock market this year, thanks to an earlier drop in oil prices, Bank Indonesia’s cumulative 50-basis-point interest-rate hikes in June and S&P Global Ratings’s decision to maintain the nation’s rating and outlook helped stabilise markets.
“My view is the Jun 8 low will hold, as the market is increasingly pricing in stabilisation rather than deterioration now,” said Mohit Mirpuri, a partner at SGMC Capital in Singapore.
Because Indonesia remains an underowned market, “the cost of being wrong by waiting for the recovery has now become greater than the cost of being selectively early,” he added.
Traders said that a large part of the recent rally has been driven by government efforts to shore up confidence across Indonesia’s struggling capital markets. Bank Indonesia unexpectedly held its benchmark rate at 5.75 per cent on Wednesday and unveiled a range of incentives aimed at attracting inflows and supporting the currency.
Meanwhile, officials have stepped up fiscal discipline efforts, including scaling back the country’s ambitious free lunch programme.
The rupiah weakened 0.2 per cent on Thursday, while the 10-year government bond yield edged up one basis point. Up 12 per cent this month, the JCI has topped global benchmarks.
Still, questions remain over the sustainability of the rebound. Despite the recent rally, the benchmark is still down some 27 per cent this year as worries about market transparency and the direction of President Prabowo Subianto’s economic agenda persist.
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MSCI will still need to make a final call on whether to downgrade the nation’s equities to frontier status later this year, as does S&P Dow Jones Indices, which has also signalled a possible reclassification.
Fund flows suggest global money managers remain cautious. Foreigners continue to be net sellers of the country’s stocks on a daily, weekly, monthly and annual basis. While they’ve pulled US$161 million this month, selling has eased from June’s more than US$1 billion in outflows.
The market has yet to price in reform measures to stave off any downgrades, with underweight positions from long-only investors “quite huge,” Rajiv Batra, JPMorgan Chase’s co-head for global emerging markets equity strategy, said in an interview with Bloomberg TV.
Once they start pricing in that Indonesia will remain in the emerging markets benchmark, and MSCI signs off on what policymakers have done, “I think the inflows will start coming back to Indonesia, and the rally will become much more sustainable,” he added. BLOOMBERG
