OJK monitors potential short-term capital outflow risks amid US-Iran conflict
Jakarta — Indonesia’s Financial Services Authority (OJK) is closely monitoring potential capital outflows in the short term, which warrant careful attention as part of the dynamics responding to recent global conditions following heightened tensions between Iran, the United States, and Israel.
“The OJK will certainly continue intensive monitoring and close oversight of liquidity and market risk. Together with other institutions within the KSSK corridors and forums, we will ensure the stability of the financial services sector is maintained,” said Acting Head of Capital Market, Financial Derivatives, and Carbon Exchange Supervision Hasan Fawzi in Jakarta on Tuesday.
Overall, Hasan stated that Indonesia’s economic fundamentals are currently relatively stable with well-maintained macro indicators. Nevertheless, vigilance remains necessary, particularly in addressing the potential transmission through ongoing global volatility and sentiment.
He explained that market pressure resulting from geopolitical escalation is occurring not only in the Indonesian stock market but is impacting all regional and global markets.
In this situation, the OJK notes that the majority of major global stock indices experienced initial weakness in response to increasing global uncertainty, which had previously been anticipated by investors through adjustments to risk sentiment.
“So it can be understood that the stock market always prices in and risks off current events for the months ahead. Therefore, before other sectors, we usually see the initial impact directly in the response of our market to the stock market,” Hasan explained.
Consequently, he added, volatility in the Composite Stock Price Index (IHSG) represents part of global transmission that is viewed as “normal” as an initial risk assessment response by investors to the escalating conflict and geopolitical conditions occurring.
In responding to such conditions, the OJK together with the Indonesia Stock Exchange (BEI) has several policies still in effect and instruments that can be utilised to maintain market stability, including share buyback policies without shareholder meeting approval under certain conditions that remain in effect.
Additionally, there is a policy implementing an automatic rejection mechanism below that is expected to help restrain the weakening of certain share prices. Should panic and one-sided markets occur in the market, trading halts can also be applied if significant pressure occurs.
Furthermore, he reminded that market stability is heavily dependent on the behaviour and response of investors. Therefore, the OJK urged investors to remain rational, monitor current developments, and consider risks and share fundamentals before making investment decisions amid current global dynamics.
Hasan stated that, learning from experiences of previous geopolitical tension increases, investors tend to reposition their portfolios towards safe haven assets such as gold, more stable foreign currencies, and both domestic and advanced country government bonds, coupled with a wait-and-see stance to monitor situation developments.
On Tuesday afternoon, the IHSG closed weaker amid market participants’ concerns regarding escalation of conflict in the Middle East region. The IHSG closed down 77.06 points, or 0.96 per cent, to 7,939.77. Meanwhile, the 45 leading shares group or the LQ45 index fell 6.89 points, or 0.85 per cent, to 805.59.