Domestic Financial Markets Plummet, Triggering Increased Investment Risk
Investment risk in Indonesia is assessed to be increasing due to heavy pressure on various domestic financial market indicators on Monday (18/5). Several financial market indicators were observed to have dropped sharply, such as the Jakarta Composite Index (IHSG), which weakened by 1.85 per cent to the 6,599.24 level, as well as 10-year sovereign bond yields, which rose to 6.85, according to Investasi.
Furthermore, the five-year Indonesia credit default swap (CDS) premium rose to the 89.73 per cent level, while the rupiah spot exchange rate weakened by 0.40 per cent to Rp17,668 per US dollar, marking its worst level ever. Economic observers assess that this series of conditions reflects an increase in the perception of risk towards the national financial market.
“There is much truth to that. The various latest indicators mentioned above indicate an increase in the perception of risk regarding the Indonesian economy and financial markets,” said Eddy Junarsim, a lecturer at the Faculty of Economics and Business, Universitas Gadjah Mada (UGM).
Eddy stated that the pressure on the rupiah currency has the potential to enlarge financial market risks, but this situation can still be mitigated through rapid policy responses from the authorities. “The potential exists. However, I am confident that officials at Bank Indonesia, the Ministry of Finance, LPS, OJK, and KSSK understand the issue, can read the indicators, and are capable of making accurate projections. The challenge is the implementation of various strategic policies in the shortest possible time,” explained Eddy Junarsim.
He added that Bank Indonesia needs to maintain the stability of benchmark interest rate policies and prepare emergency handling measures if the situation becomes urgent. “Fundamentally, BI faces a dilemma between inflation management and/or full employment,” said Eddy Junarsim.
The government is also advised to support stability through fiscal policies such as tax incentives for entrepreneurs, budget efficiency, and maintaining safe limits for the deficit ratio and national debt. Investors are also urged to remain vigilant, as this combination of market pressures has the potential to trigger further corrections in both stock and bond investment instruments.
“In times of such uncertainty, investments in Treasury bills, corporate bonds, or stocks should not be long-term oriented as they are prone to corrections,” emphasised Eddy Junarsim. The weakening of the exchange rate and the rise in risk premiums can directly reduce the portfolio value of investors who placed their funds before volatility increased. Nevertheless, the opportunity for the rupiah’s exchange rate to improve is considered wide open if all stakeholders focus on improving policies across various sectors. “The rupiah has great potential to strengthen if BI, the government, and all components of society focus on improving policies and practices in the fields of economy, socio-politics, law, as well as education and technology,” concluded Eddy Junarsim.