Rancak Media – – Indonesia’s domestic financial markets are facing persistent pressure, according to PT Mirae Asset Sekuritas Indonesia. Amidst a weakening rupiah, foreign capital outflows, and concerns over an economic slowdown, the Indonesian market is navigating a vulnerable phase.
This market strain was evident in the performance of the Composite Stock Price Index (IHSG) last week. From May 18th to 22nd, 2026, the IHSG plummeted by 8.35%, closing at 6,162.04. This sharp correction represented a significant loss of value, with Indonesia’s stock market capitalization shrinking by 10.07% to Rp10,635 trillion, effectively erasing Rp1,190 trillion in just one week.
The primary drivers behind this pressure stem from external sentiment and technical market factors. One significant trigger was the MSCI index rebalancing, set to take effect on June 1st, 2026. This adjustment will see six Indonesian stocks removed from the MSCI Global Standard Index, a move anticipated to potentially lead to capital outflows amounting to USD 1.7 billion.
Market concerns extend beyond this immediate rebalancing. There is also apprehension regarding the possibility of Indonesia’s status being downgraded from an emerging market to a frontier market if structural market issues are not promptly addressed. This potential downgrade looms large over investor sentiment.
While the IHSG saw a brief rebound on Monday, May 25th, closing up 0.72% at 6,206.35, driven by large-cap stocks like AMMN, BBRI, and BBCA, this recovery has not fundamentally altered the prevailing sentiment. Foreign investors continued to record net selling of approximately Rp2.2 trillion in the lead-up to the MSCI rebalancing implementation.
Simultaneously, the pressure on the rupiah has not subsided. The Indonesian currency weakened further, trading at Rp17,744 against the US dollar. Rully Arya Wisnubroto, Head of Research & Chief Economist at PT Mirae Asset Sekuritas Indonesia, cautioned that the current market uptick should not be interpreted as a solid recovery, suggesting the rebound is primarily technical.
“As long as rupiah volatility remains high and foreign outflows persist, global investors will likely remain defensive towards domestic assets. The current market strengthening is still relatively fragile,” Rully stated.
Rully further noted a shift in investor focus. Previously centered on inflation and interest rate trajectories, market concerns are now increasingly directed towards the sustainability of economic growth. A key indicator being monitored is the flattening of the yield curve, signaling that the market is anticipating a future economic slowdown.
The rise in short-term bond yields, following Bank Indonesia’s 50 basis point increase in the BI Rate, suggests tightening domestic liquidity. Meanwhile, the relatively stable long-term yields indicate that the market is factoring in medium-term economic slowdown risks. “The market is entering a phase where investors are not only looking at interest rate direction but also the sustainability of domestic economic growth amidst rising funding costs and ongoing external pressures,” he added.
External fundamentals are also contributing to the pressure on the domestic market. Jessica Tasijawa, Fixed Income Analyst at PT Mirae Asset Sekuritas Indonesia, highlighted the widening deficit in Indonesia’s Balance of Payments (BOP). In the first quarter of 2026, the BOP deficit reached USD 9.1 billion, with the current account deficit widening to 1.1% of GDP, the deepest since the third quarter of 2020.
According to Jessica, the weakening rupiah is not solely attributable to global factors; domestic external imbalances are also exerting additional pressure. This situation is exacerbated by declining export demand from key trading partners, including China, Japan, and South Korea, whose economic slowdowns are impacting Indonesian exports.
In response, the government, in conjunction with Bank Indonesia, is preparing to implement the Non-Tax State Revenue (DHE SDA) policy starting June 1st, 2026. This regulation mandates that exporters hold their export proceeds domestically for 12 months. Furthermore, 50% of export earnings must be converted into rupiah through domestic banks, a measure intended to boost demand for the national currency.
“The effectiveness of its implementation will be a key factor the market will be watching in the coming months,” Jessica concluded.
Amidst these prevailing pressures, Mirae Asset forecasts that Bank Indonesia will maintain its benchmark interest rate at 5.25% through the end of 2026. The central bank’s primary objective is to safeguard rupiah stability while preserving the attractiveness of domestic yields for investors.
Summary
PT Mirae Asset Sekuritas Indonesia warns of a fragile rebound in the Indonesian Composite Stock Price Index (IHSG) due to a weakening rupiah, persistent fund outflows, and concerns over economic slowdown. The IHSG experienced a significant drop of 8.35% in late May 2026, with market capitalization shrinking by Rp1,190 trillion in a single week. Key drivers for this pressure include the MSCI index rebalancing, which could lead to USD 1.7 billion in capital outflows, and the potential downgrade of Indonesia’s market status.
Despite a brief technical rebound driven by large-cap stocks, foreign investors continued to record net selling, and the rupiah remains under pressure, trading at Rp17,744 against the US dollar. Analysts attribute this to both global factors and widening domestic external imbalances, such as a significant Balance of Payments deficit. Measures like the DHE SDA policy, requiring exporters to hold and convert proceeds domestically, are being implemented to support the rupiah, while Bank Indonesia is expected to maintain its benchmark interest rate to ensure stability.
