Why Is the IDX Composite Falling While Global Markets Rally?

The Jakarta Composite Index (IHSG) faced a perilous day on Thursday (May 21), teetering on the brink of breaching the 5,900 level during intraday trading. By 1:35 PM Western Indonesia Time (WIB), the Indonesian stock market’s benchmark index had plunged a significant 3.66% to 6,087, painting a bleak picture for investors.

This unsettling decline has pushed the IHSG back to levels reminiscent of the Covid-19 pandemic era in 2021, when it hovered around the 6,000 mark. The year-to-date performance reveals an alarming drop of 29.47%, further compounded by a 19.69% slide over just the past month. This stands in stark contrast to its performance at the end of 2025 and early 2026, when the IHSG had soared to an all-time high (ATH) of 9,134 on January 20, 2026, with a market capitalization reaching Rp 16,590 trillion.

The initial downward pressure on the IHSG originated from global index provider MSCI Inc.’s decision to suspend Indonesian stocks during its February index rebalancing. This sentiment was exacerbated when FTSE Russell, another prominent rating agency, followed suit. A key reason cited by both institutions was the lingering demand for greater transparency from Indonesian stock exchange authorities regarding the beneficial ownership of publicly listed companies.

Adding to the market’s woes, heightened global geopolitical tensions following an open conflict involving Israel and the United States against Iran triggered widespread instability. The resulting market unraveling was not confined to the IHSG but impacted the majority of global stock exchanges. However, a divergence has emerged in the past week: while numerous global bourses have shown signs of recovery, the IHSG continues its downward spiral.

On the trading day, Asian stock markets and Wall Street indices broadly rallied. Japan’s Nikkei surged by 3.57%, Hong Kong’s Hang Seng gained 0.18%, the Shanghai Composite rose 0.73%, Singapore’s Straits Times saw a 0.26% increase, and South Korea’s KOSPI recorded an impressive 7.03% jump. Similarly, Wall Street in the US closed higher on Wednesday (May 20), bolstered by falling oil prices and declining US government bond yields, with the Dow Jones Industrial Average up 1.31%, the S&P 500 rising 1.08%, and the Nasdaq Composite advancing 1.54%.

The stark difference in performance between the IHSG and its global counterparts has left investors questioning: What exactly is happening to the Indonesian Exchange?

IHSG Shadowed by Domestic Sentiments

Elandry Pratama, an analyst and Branch Manager at Panin Sekuritas Pondok Indah, believes the market is currently highly sensitive to the domestic policy direction under President Prabowo Subianto’s administration. He notes that despite the recovery in Asian and Wall Street markets, investors in Indonesia remain hesitant due to several internal factors that have hampered the recovery of risk appetite for the country.

According to Pratama, several key domestic policies and issues are currently at the forefront of market concerns. Firstly, there are significant worries regarding Indonesia’s fiscal condition and the financing of its State Budget (APBN). Investors are anticipating a potential widening of the fiscal burden due to numerous large government programs requiring substantial funding. The fear is that this increased funding requirement will necessitate higher debt issuance, subsequently pressuring the Rupiah’s exchange rate and liquidity within the financial markets.

Secondly, the market is grappling with uncertainty surrounding the current administration’s economic policy direction. Elandry observes that market participants are still awaiting definitive clarity on the Prabowo government’s core strategies, particularly concerning industrialization agendas, the role of State-Owned Enterprises (SOEs), downstreaming programs, subsidy schemes, and plans for establishing new institutions or bodies that will shape future economic policies. “The market typically dislikes uncertainty, leading to a ‘wait and see’ attitude,” Elandry explained when contacted by Katadata.co.id on Thursday (May 21).

Thirdly, concerns have emerged regarding potential state intervention and an increased government role in the business sector. Elandry points to plans for forming a commodity export body, strengthening the role of SOEs, and various discussions on managing strategic sectors. These developments are prompting investors to re-evaluate the margin prospects of listed companies, especially those in the mining and commodities sectors.

Fourth, the persistent pressure on the Rupiah and the government’s policy response remain critical. Elandry emphasizes that any weakening of the Rupiah immediately captures market attention, demanding a strong and consistent policy response from both the government and Bank Indonesia to maintain exchange rate stability and investor confidence. “If the Rupiah is perceived as vulnerable, foreign investors typically choose to reduce their positions in Indonesian bonds and stocks,” he added.

The fifth influential factor, according to Pratama, is the state of public purchasing power and a slowdown in household consumption. He indicates that the market is beginning to detect signs of weakening consumption among the middle-class segment across various sectors. This condition renders consumer and retail stocks more sensitive, as market players anticipate potentially slower profit growth for these companies.

Lastly, the sixth factor pertains to foreign capital outflows. Elandry elaborated that foreign investors are currently adopting a more selective approach when allocating funds in emerging markets. Consequently, the IHSG becomes more susceptible to corrections even amidst broadly positive global sentiments.

Elandry concluded that the primary issues plaguing the IHSG are not solely driven by global factors. Instead, they are predominantly rooted in the level of investor confidence in the domestic policy direction and the outlook for future macroeconomic stability. “The market seeks assurance that growth will be sustained without compromising fiscal discipline and Rupiah stability,” he affirmed.

Meanwhile, BRI Danareksa Sekuritas reported that the IHSG continued its decline after breaking through crucial support levels between 6,870 and 7,020. The index is also currently trading below its 200-day Moving Average (MA200), signaling that a bearish trend remains dominant in the market. From a momentum perspective, the MACD indicator further reinforces this weakening trend, indicating sustained selling pressure.

BRI Danareksa Sekuritas has established technical levels for the IHSG, with resistance at 6,635, support at 6,220, a gap area at 6,100, and a major support level at 5,900. They also attributed the plunge in the IHSG to a confluence of domestic and global pressures.

Domestically, the 50-basis-point increase in Bank Indonesia’s benchmark rate (BI Rate) to 5.25% has ignited market concerns about tight liquidity and a rising cost of capital for issuers. Additional pressure has stemmed from the performance of stocks within the Prajogo Pangestu group, such as BREN, TPIA, and BRPT, which have acted as significant drag factors on the index due to investor selling activity.

Externally, the Federal Open Market Committee (FOMC) minutes indicated a persistently hawkish stance from the US Federal Reserve amid inflation risks fueled by the Iran conflict. This has amplified negative sentiment in global markets, further pressuring the IHSG. “The Rupiah, which continues to hover around Rp 17,600 per US dollar, further exacerbates concerns about capital outflow,” BRI Danareksa noted in their report on Thursday (May 21).