LQ45 Rebound at Year-End? Check Bank Stock Prospects!

Bisnis.com, JAKARTA – The most liquid stocks comprising Indonesia’s benchmark LQ45 index have shown relatively subdued performance compared to the competing SMC Liquid index throughout 2025. Despite facing several challenges, the LQ45 index retains the potential for a significant rebound towards the end of the year.

According to Bloomberg data, the LQ45 index, representing the most liquid stocks in the Indonesian market, recorded a modest gain of only 2.30% year-to-date (YtD) in 2025. In stark contrast, the SMC Liquid index, which tracks highly liquid small-to-medium capitalization stocks, surged by an impressive 12.42% YtD during the same period, highlighting a distinct shift in investor preference.

Imam Gunadi, an Equity Analyst at Indo Premier Sekuritas, explained that the LQ45 index’s performance has been hampered by a combination of domestic and sectoral pressures. Notably, banking stocks, which typically act as key drivers for the index due to their heavy weighting, have delivered a lackluster performance.

For instance, major banking players have seen significant corrections year-to-date: PT Bank Central Asia Tbk. (BBCA) declined by 13.18%, PT Bank Rakyat Indonesia (Persero) Tbk. (BBRI) fell by 2.94%, and PT Bank Mandiri (Persero) Tbk. (BMRI) dropped by 13.16%. This underperformance from the banking sector has had a considerable impact on the overall LQ45 index trajectory.

“The banking sector, as the largest contributor, is experiencing a slow recovery because net interest margins (NIM) have yet to improve. Foreign outflows have also pressured big-cap stocks as global investors have not yet aggressively returned to the domestic market,” Imam told Bisnis on Friday (21/11/2025).

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Despite the current headwinds, Imam believes that opportunities for the LQ45 index to strengthen are open, though any potential gains will be selective. This means that only certain sectors are likely to experience significant upward movement in the remainder of 2025, driven by specific catalysts.

Anticipated monetary easing and an improvement in domestic liquidity are expected to serve as key catalysts for the consumer and telecommunications sectors by year-end. While the banking sector continues to grapple with pressures on net interest margin (NIM) and cost of funds, a recovery path remains viable should liquidity pressures abate, offering a glimmer of hope for these crucial components of the index.

“Technically, the index is in an oversold area, suggesting a potential for a technical rebound during year-end window dressing,” Imam added, indicating a possible short-term boost driven by institutional portfolio adjustments.

Echoing this sentiment, Muhammad Wafi, Head of Research at KISI Sekuritas, projected that the potential for strengthening in LQ45 stocks might be limited. This is primarily due to the heavy fundamental burden from the banking sector, which holds a substantial weight as an index mover, suppressing overall growth prospects.

Furthermore, Wafi observed a discernible rotation of investors towards small-to-medium capitalization stocks, particularly as the fundamental performance of banking stocks remained sluggish. He noted that the loosening of global liquidity has not automatically translated into an influx of capital into large-cap stocks, challenging the conventional wisdom that often links global liquidity with big-cap performance.

“Big-cap bank stocks remain weak, exhibiting lower profits, tight NIMs, and uneven foreign flows. Consequently, an index heavily weighted towards banking will naturally lift only slowly,” Wafi stated on Friday (21/11/2025), emphasizing the direct correlation between banking health and LQ45’s pace of recovery.

According to Wafi, if the final quarter of 2025 witnesses an improvement in bank credit realization and a relaxation of net interest margins, the probability of banking stocks recovering will significantly increase. Additionally, the telecommunications sector has already shown signs of improvement following the easing of tariff competition. Should these conditions materialize, a strengthening of the LQ45 index would become an inevitable outcome.

Similarly, James Widjaja, Research Analyst at PT Henan Putihrai Sekuritas, highlighted several factors that could sweeten the outlook for LQ45 issuers. He pointed to the various stimulus packages recently rolled out by the government, coupled with an accelerated government fiscal spending, as positive drivers for market sentiment and corporate performance.

Moreover, the attractive dividend yield offered by LQ45 stocks stands out as a compelling incentive for institutional investors. With the LQ45 dividend yield at a notable 5.2%—a spread of 70 basis points above the one-year bond yield of 4.5%—it presents an enticing proposition for those seeking stable returns.

“We anticipate that macro conditions will improve in Q4/2025 and beyond, which will drive earnings per share recovery,” Widjaja concluded on Friday (21/11/2025), painting a positive picture for the index’s long-term health and investor confidence.

Disclaimer: This news article is not intended as an invitation to buy or sell stocks. Investment decisions are solely at the reader’s discretion. Bisnis.com is not responsible for any losses or gains arising from the reader’s investment decisions.