Beware! Dozens of Indonesian Shares Could Fall Sharply Due to Iran Conflict
The conflict between the United States and Israel against Iran is once again causing concern in global financial markets, including Indonesia. As an emerging market, Indonesia’s domestic stock market faces increased risk of capital outflows as global sentiment deteriorates.
The pressure is typically felt most acutely on shares with high foreign ownership, large debt levels, and strong sensitivity to changes in global liquidity. In a risk-off situation, investors tend to reduce exposure to risky assets and redirect funds to instruments considered safer, such as gold, bonds, and money markets. These sentiment shifts are typically reflected in increased stock market volatility and weakening currency values in developing countries.
When global investors begin adjusting their portfolios, shares with high liquidity and large weightings in indices become the primary candidates for liquidation due to transaction efficiency. Several stock sectors are vulnerable to outflows because of the conflict:
Major Bank Stocks
Big-cap bank shares form the backbone of the Jakarta Stock Exchange Index and are core holdings for foreign investors. In a risk-off situation, global investment managers tend to reduce exposure in emerging markets and redirect funds to safe assets such as the US dollar or US government bonds. Indonesian big-cap banking stocks that could be affected include PT Bank Central Asia Tbk (BBCA), PT Bank Mandiri Tbk (BMRI), PT Bank Negara Indonesia Tbk (BBNI), and PT Bank Rakyat Indonesia Tbk (BBRI).
However, it should be noted that the correction risk from this conflict should have a temporary impact, as this represents more external pressure rather than fundamental weakness. If the market views this correction as opening more attractive valuations and potentially increasing dividends, then the prospects for these shares will return and they will become attractive again as long-term investment vehicles.
Other Blue-Chip Shares with Significant Foreign Investment
Beyond banking, blue-chip shares with high foreign exposure tend to become sources of liquidity when global volatility increases. Large-cap and liquid stocks are often the first choice for liquidation when global investors reduce risk. This phenomenon makes premier shares vulnerable to short-term pressure despite relatively stable operational performance. Price movements are more influenced by fund flows than fundamental changes.
Several Indonesian shares with the highest foreign ownership include PT Bank Danamon Tbk (BDMN), PT Bank CIMB Niaga Tbk (BNGA), PT Bank BTPN Tbk (BTPN), PT H.M Sampoerna Tbk (HMSP), PT Bank OCBC NISP Tbk (NISP), PT Astra International Tbk (ASII), and others.
Aviation Sector
The aviation sector also warrants attention, particularly due to its sensitivity to energy prices. Rising oil prices could increase aviation fuel costs and squeeze margins. However, sector dynamics are not always clear-cut. In some cases, airlines can pass on cost increases through fuel surcharges or ticket price adjustments, especially if travel demand remains strong and flight capacity is limited. Therefore, market response to aviation shares depends heavily on the duration and scale of oil price increases.
If the increase is temporary, its impact may be limited. Conversely, if it lasts long and is significant, the pressure on profitability would be more pronounced.
Currently, the aviation sector is experiencing significant pressure from Iran’s retaliatory strikes targeting US military bases scattered across several countries in the Middle East. From Dubai and Saudi Arabia to Qatar, escalating attacks across the Gulf region have caused several airports to temporarily restrict operations and airlines to cancel or divert flights.
The impact is felt not only by international transit passengers but also by Indonesian pilgrims heading to Umrah who have been forced to postpone or cancel trips due to safety concerns and schedule uncertainty. Several travel agencies have reported a surge in reschedule requests, whilst airlines have adjusted routes to avoid airspace deemed risky. These disruptions could potentially suppress international travel flows in the short term and increase airline operating costs due to longer route changes and increased aviation insurance premiums.
Moreover, Indonesian aviation shares remain burdened by high debt levels. Aviation stocks in Indonesia include PT Air Asia Indonesia Tbk (CMPP) and PT Garuda Indonesia Tbk (GIAA).
Shares with High Debt Levels
Additionally, companies with high debt levels warrant scrutiny, particularly those with obligations denominated in US dollars. When conflict drives dollar strength and increases global risk premiums, interest and principal payment burdens could rise. Exchange rate risk can widen pressure on financial statements, whilst refinancing costs become more expensive. In conditions of high uncertainty, markets typically become more selective and tend to avoid companies with large leverage and weak cash flows.
Several Indonesian shares with high US dollar-denominated debt include PT Indofood Sukses Makmur Tbk (INDF) along with its subsidiary PT Indofood CBP Sukses Makmur Tbk (ICBP), property developers PT Modernland Realty Tbk (MDLN) and PT Alam Sutera Tbk (ASRI).