Despite the strong rally in Indonesian equities today, foreign investors continued to sell the three largest banks: BBCA, BMRI, and BBRI.
That remains the most important signal. A sustainable bull market is difficult to achieve without foreign participation because these three banks collectively represent a significant portion of the market’s capitalization, liquidity, and institutional ownership base. Foreign investors still own a substantial share of Indonesia’s banking sector, which means their positioning continues to influence overall market direction. As long as they remain net sellers or stay on the sidelines, it is difficult to argue that sentiment has fundamentally turned.
This is why today’s rally should be viewed with some caution. Price action can improve temporarily, but a durable rerating requires fresh capital. Without meaningful foreign inflows, rallies risk becoming positioning squeezes rather than the beginning of a new upcycle.
The bond market tells a similar story. Indonesia’s bond selloff deepened after Bank Indonesia delivered an off-cycle rate hike aimed at stabilizing the rupiah. The 10-year government bond yield surged to 7.51%, the highest level since November 2022, while the 5-year yield briefly touched levels last seen during the pandemic period in 2020. Rising yields suggest investors continue demanding higher compensation to hold Indonesian duration despite the central bank’s intervention.
That said, the latest move from Bank Indonesia appears more measured than the previous surprise 50bps hike. The tone was more targeted and less indicative of emergency policy action. Policymakers appear to be signaling that they are willing to defend the currency while avoiding unnecessary damage to domestic growth.
What is particularly interesting, however, is that market participants are already looking beyond this move. Expectations are building for additional tightening at the June 18 meeting, with some investors discussing the possibility of another 50bps hike.
If that becomes the base case, the question shifts from whether Bank Indonesia can stabilize the rupiah to why such aggressive tightening is still perceived as necessary. Monetary policy can slow speculation and improve interest-rate differentials, but it cannot single-handedly restore confidence if investors remain concerned about growth, fiscal policy, earnings momentum, and capital flows.
Ultimately, the message from both equities and bonds is similar. Indonesia’s challenge is no longer purely about valuation. Many assets already look cheap. The challenge is confidence. Until foreign investors become buyers rather than sellers, it is difficult to argue that the market has fully turned the corner.
🚨 Leny Yoro is flying in to have a medical and finalise personal terms with #mufc. Club agreed fee of £42m plus add-ons with Lille last week. #mujournal
[@ChrisWheelerDM]