Analyst: IHSG Falls 3% on Hawkish Global Interest Rate Outlook

Jakarta - Capital market analyst Reydi Octa stated that the 3% weakening of the Indonesia Stock Exchange (IDX) Composite index (IHSG) was caused by expectations of a hawkish stance from global central banks regarding their benchmark interest rate policies. The hawkish expectations prompted global investors to adopt a risk-off attitude, including in the stock markets of emerging market countries like Indonesia.

“Today’s IHSG weakening, I see it as more influenced by investors still scrutinising the direction of global interest rates which remain hawkish, the movement of the United States dollar, and geopolitical dynamics that continue to encourage a risk-off stance,” Reydi said when contacted in Jakarta on Wednesday.

Meanwhile, from the domestic side, Reydi said investors are still waiting for a strong catalyst that can restore confidence after a prolonged period of foreign outflow. He explained that foreign investors currently tend to remain selective and defensive towards the Indonesian market. According to him, Indonesia’s status as an Emerging Market according to the MSCI classification does reduce the risk of outflow, but it is not yet sufficient to immediately reverse foreign outflow into significant foreign inflow.

“Investors are still waiting for improvements in liquidity, policy certainty, rupiah stability, and enhanced market quality,” Reydi stated. In the short term, he projects the IHSG still has the potential to move in a volatile manner with a consolidation tendency, where as long as there is no strong positive catalyst, its movement will still be dominated by global sentiment and foreign fund flows. “However, if the rupiah stabilises and foreign selling pressure begins to ease, the opportunity for a rebound remains open,” Reydi added.

For context, Fed Funds Futures in the US indicate the potential for two interest rate hikes by the Federal Reserve throughout 2026, compared to only one previously. This shift in expectations drove an increase in US government bond yields and increased pressure on growth stocks, particularly in the technology sector which has been the main engine of the market rally.

Trading data on the Indonesia Stock Exchange (IDX) on Wednesday at 14:40 Western Indonesia Time showed the IHSG recorded a decline of 183.76 points, or 3.01%, to a position of 5,917.57. Share trading frequency was recorded at 1,525,000 transactions, with a total of 17.54 billion shares traded worth Rp10.63 trillion. A total of 108 shares rose, 606 shares fell, and 245 remained unchanged. Based on the IDX-IC Sectoral Indices, all eleven sectors weakened, with the raw materials sector falling the deepest at minus 5.22%, followed by the energy and infrastructure sectors which fell by 4.71% and 3.92% respectively.