Indonesian equities have officially entered bull-market territory, climbing more than 20% from the five-year low in early June, as attractive valuations, swift regulatory intervention, and a gradual return of foreign capital combine to lift sentiment toward Southeast Asia’s largest economy
The Jakarta Stock Exchange Composite Index is now up nearly 21% on August 10, 2026, after the crash in early June. Still, the index performance is still 26% lower so far this year.
The turning point came after S&P Global reaffirmed Indonesia’s BBB sovereign credit rating with a stable outlook a couple of weeks ago, a move that gave investors renewed confidence in the country’s fiscal footing.
Much of the volatility that battered Indonesian shares earlier this year traces back to concerns raised by index provider MSCI, which questioned governance standards across many Indonesian listings and floated the possibility of downgrading the market from emerging to frontier status. A recurring issue was the low free float and heavy ownership concentration seen at many companies.
MSCI ultimately chose not to proceed with the downgrade — a decision Gareth Leather, senior economist at Capital Economics, described as a major relief for investors that helped stop the panic selling in its tracks. With that overhang lifted, some investors began rotating out of richly valued AI and technology stocks in search of cheaper, safer markets to deploy capital.
Investor anxiety over Indonesia’s fiscal position has also eased. Government revenue has come in stronger than expected, with tax collections recovering solidly in the first half of the year — evidence, Camelia said, that fears of a deeper fiscal shortfall may have been overdone.
Local financial regulators moved quickly to address the structural weaknesses that MSCI had flagged, raising minimum free-float requirements and tightening ownership disclosure rules.
Taken together, the reaffirmed sovereign rating, the averted MSCI downgrade, stronger-than-expected fiscal data, and tighter market-structure rules have given investors enough reassurance to start stepping back into Indonesian equities. The rally doesn’t erase a brutal year-to-date decline of nearly 26%, but it does mark a meaningful shift in tone — from a market investors were fleeing to one they’re once again willing to buy into at what many now see as bargain valuations.
At the Bangkok Bank and Permata Bank forum this July, H.E. Mr. Hari Prabowo, Ambassador of the Republic of Indonesia to Thailand, stated regarding the MSCI issue that Indonesia and its stock exchange are accelerating improvements in free float and transparency—the primary areas of concern raised by MSCI. He expressed a positive outlook on the development of this matter following MSCI’s decision to postpone its review.
Furthermore, he opined that the Indonesian market should not be downgraded to a Frontier Market, as it remains resilient against volatility and boasts a market capitalization significantly higher than those markets. Additionally, he noted that fund inflows have begun to return over the past few weeks, particularly into bonds, as Indonesia’s market firmly maintains its Investment Grade rating.
