IHSG Likely to Be Volatile Amid Heightening Middle East Tensions

The Indonesia Stock Exchange (IDX) Composite Index (IHSG) is likely to move with volatility on Thursday amidst rising tensions in the Middle East region. The IHSG opened down 3.11 points, or 0.05 percent, at 5,899.27. Meanwhile, the LQ45 index of 45 leading stocks rose 0.83 points, or 0.14 percent, to 590.31. “Market sentiment remains dominated by developments in the Middle East, after CENTCOM announced a new wave of attacks against Iran on the orders of US President Donald Trump,” said Kiwoom Sekuritas Head of Research Liza Camelia Suryanata in her analysis in Jakarta on Thursday. From overseas, Trump again warned that Iran would “pay a price” if it continued to delay a peace deal, while Iran affirmed it would retaliate against any threat or attack it received. The conflict, now entering its fourth month, has renewed concerns over global energy supplies. Uncertainty remains high because the Strait of Hormuz, which carries about 20 percent of the world’s oil supply, is still a major global energy risk point. Additionally, Trump claimed the US has conducted “secret missions” to help more than 200 commercial vessels pass through the Strait of Hormuz and deliver over 100 million barrels of oil to global markets. However, the claim was denied by US Energy Secretary Chris Wright, who admitted he was unaware of such operations. On the monetary policy front, the Bank of Canada held its benchmark interest rate and markets continued to observe that rising energy prices due to the Iran war would force the Fed, the European Central Bank (ECB), and the Bank of Japan (BoJ) to maintain tighter monetary policy for longer than previously forecast. According to CME FedWatch, the market still expects the Fed to hold interest rates at its meeting next week, which will be the first FOMC under new Chairman Kevin Warsh. However, the probability of a 25 bps rate hike by year-end rose to around 43 percent. The 10-year US Treasury yield rose to 4.55 percent, while the 30-year yield again breached 5 percent. Domestically, Bank Indonesia’s Consumer Survey showed public optimism towards the economy remained strong in May 2026, with the Consumer Confidence Index (IKK) holding at a high level of 120.9, supported by solid future economic expectations (IEK 129.7). Nevertheless, perceptions of current economic conditions began to weaken, reflected by the Current Economic Conditions Index (IKE) which fell to 112.2 in May 2026 from 116.5 in April 2025, indicating consumers are still optimistic about the future but are becoming more cautious about prevailing conditions. Meanwhile, Indonesia’s International Investment Position (PII) improved in the first quarter of 2026, with net liabilities falling significantly to 227.6 billion US dollars from 273.4 billion US dollars in the fourth quarter of 2025, mainly due to a larger decline in Foreign Financial Liabilities (KFLN) compared to the decline in Foreign Financial Assets (AFLN). This improvement lowered the ratio of net PII liabilities to GDP to 15.5 percent from 18.9 percent, while direct investment continued to record a surplus and the external liability structure remained healthy with 92.5 percent dominated by long-term instruments. Additionally, market participants will scrutinise the April 2026 retail sales data to determine whether public purchasing power, particularly for the middle-income class, can still be relied upon as a main driving component of economic growth. During Wednesday’s trade, European stock markets were varied, with the Euro Stoxx 50 weakening 0.62 percent, the UK’s FTSE 100 strengthening 0.27 percent, Germany’s DAX weakening 0.97 percent, and France’s CAC 40 weakening 0.51 percent. Meanwhile, US Wall Street stocks fell across the board on Wednesday, with the Dow Jones Industrial Average weakening 1.87 percent, the S&P 500 weakening 1.62 percent, and the Nasdaq Composite weakening 1.98 percent. Asian regional stock markets this morning included the Nikkei index weakening 0.86 percent to 63,643.00, the Shanghai index weakening 0.64 percent to 3,969.31, the Hang Seng index weakening 1.12 percent to 24,118.00, and the Strait Times index weakening 0.19 percent to 4,948.78.