Market Braces for Global-Local Shocks as Investors Demand Clearer Policy Signals
Main Takeaways
|
JAKARTA, investortrust.id – Rising geopolitical risks and domestic policy turbulence have weighed heavily on Indonesia’s stock market, prompting a strong response from market participants who are urging the government to stabilize sentiment through better governance and clearer communication.
A recent survey conducted by Datatrust between March 26 and April 7, 2025, involving analysts and fund managers from a range of financial institutions, revealed that between 50% and 90% of the Jakarta Composite Index’s (IHSG) recent losses can be attributed to a combination of global and domestic factors.
Internationally, investors cited the return of trade protectionism, particularly policies associated with former United States President Donald Trump, as a key source of concern. Heightened geopolitical tensions and persistently high interest rates set by the US Federal Reserve have also pushed investors toward safe haven assets, especially the US dollar, adding pressure to emerging markets like Indonesia.
Domestically, policy decisions have added to the uncertainty. Investors expressed concern over the recent establishment of Danantara, Indonesia’s new sovereign wealth fund, as well as the state budget’s growing exposure to large-scale populist programs, such as the Free Nutritious Meals initiative and the construction of three million subsidized housing units.
These spending plans are viewed as fiscally burdensome and lacking clarity in long-term financing. Compounding the unease is the perceived lack of quality in recent cabinet appointments and growing worries over selective legal enforcement in high-profile corruption cases, which have raised red flags around governance and rule of law.
Investors have also taken issue with public statements made by President Prabowo Subianto, which they say have undermined market confidence. In recent remarks, Prabowo likened retail investment by low-income individuals in the stock market to gambling, stated that he did not personally own shares, and questioned whether villagers could be genuinely engaged in equity markets.
He also downplayed the importance of market fluctuations by suggesting that share prices were irrelevant as long as food security was maintained. For many in the financial community, these comments signaled a troubling disconnect from the expectations of market-based policymaking and exacerbated doubts over the government's commitment to economic stability.
Looking ahead, most respondents in the survey anticipated that a market recovery would not materialize before the end of 2025, with some casting doubt on any near-term rebound at all. Their cautious outlook was rooted in concerns over fiscal credibility and the need for institutional reforms.
Specifically, investors called for improved governance at Danantara, stronger assurances around budget sustainability, and a cooling of political and legal volatility that currently clouds the investment climate. A consistent message from the survey was the urgent need for more disciplined and coherent communication from senior officials, particularly the president, to avoid triggering negative sentiment or confusion in financial markets.
Despite the gloom surrounding equities, many investors still identified stocks, gold, and corporate bonds as the most promising investment instruments in the medium term. However, confidence in the government’s long-term growth target remains low. Few respondents believed that the administration’s ambition to achieve 8% GDP growth by 2029 was realistic under current policies. The mismatch between the government’s economic rhetoric and its policy execution has only deepened skepticism among capital market stakeholders.
On the external front, the specter of reciprocal tariffs from the United States looms large. In response to this risk, investors recommended a firm but diplomatic strategy, including accelerating bilateral trade negotiations and enhancing economic communication between Jakarta and Washington. Some even advocated for retaliatory measures, such as targeted tariffs on US goods and services, including popular digital platforms like Google and Netflix, should trade tensions escalate further.
In the end, investor sentiment will remain fragile until the government demonstrates a firm commitment to fiscal prudence, institutional integrity, and market-friendly communication. While populist policies may offer short-term political gains, they carry long-term costs if they erode investor trust and financial credibility. Only by restoring confidence through consistent governance and explicit support for capital markets can the government hope to revive the IHSG and put Indonesia’s investment narrative back on a sustainable path.