Indonesian stocks are experiencing a significant rebound in July, with the Jakarta benchmark index up more than 10%, contrasting sharply with the declines seen in tech-heavy indexes across the region. This comes after Indonesia's stock market was Asia's worst performer this year, down 28%, amidst over $4 billion in foreign outflows. The rally suggests investors are rotating into lagging markets as concerns about AI valuations cool.
While the rebound is still tentative, sentiment is growing that the worst may be over for Indonesian markets. This positive shift occurs despite ongoing concerns about fiscal discipline and uncertainty surrounding MSCI's review, which had previously threatened a downgrade. S&P Global Ratings recently reaffirmed Indonesia's sovereign rating with a stable outlook, and Citi noted that client meetings in Hong Kong and Thailand indicated a belief that the stock market may have bottomed. Invesco's David Chao mentioned taking profits from South Korea to invest in Indonesia, calling it "probably the most under-looked macro growth story play."
Local factors are also contributing to the improved outlook. The Jakarta Composite Index (JCI) has seen foreign investors net-buying, with a net buy of IDR 1.2 trillion in the regular market, reversing months of capital outflows. The Indonesia Stock Exchange (IDX) has introduced new regulatory steps, including refining its methodology for Highly Concentrated Share Ownership (HSC) by adding a price impact ratio indicator. This is a direct response to MSCI's transparency concerns and acts as a positive catalyst ahead of MSCI's November review, where most analysts expect Indonesia to retain its emerging-markets status. Additionally, foreign direct investment (FDI) reached IDR 257.7 trillion in Q2 2026, a 27.4% year-on-year increase, marking an all-time high.
