Jakarta. Indonesia’s benchmark stock index, the Jakarta Composite Index (JCI), falls 6.12 percent, shedding 395.8 points to close at 6,076.08 in the first trading session on Tuesday. The sharp decline triggered an automatic trading halt at 11:19 a.m. local time, lasting 30 minutes, as the index breached the 5 percent decline threshold.

“A drop of more than 5 percent signals that Indonesia’s economy is under significant pressure,” said Hendra Wardana, founder of Stocknow.id. “Foreign investors are increasingly cautious, although markets are cyclical, and a rebound is possible if economic policies stabilize.”

Investor sentiment has deteriorated as foreign funds continue to exit the Indonesian market. Year-to-date, net foreign outflows have reached Rp 26.04 trillion ($1.58 billion), including Rp 1.77 trillion in the past week alone, underscoring diminishing confidence in Southeast Asia’s largest economy. The JCI has fallen 8.59 percent year-to-date.

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Government fiscal concerns are adding to the pressure. As of February, Indonesia’s budget deficit stood at Rp 31.2 trillion, while debt servicing costs soared to Rp 79.3 trillion in the first two months of 2025. Rising debt burdens could constrain government spending, limiting economic stimulus measures.

At the same time, the real sector is under stress, with rising unemployment and an increase in non-performing loans (NPLs) to 2.17 percent in January, up from 1.9 percent last year. “Weakening consumer purchasing power and rising credit risks are clear indicators of economic strain,” Hendra added. The rupiah’s depreciation further pressures companies with US dollar-denominated debt.

The sharp decline in the JCI was driven by steep losses in heavyweight stocks. Data center operator DCI Indonesia (DCII) plunged 20 percent, petrochemical giant Chandra Asri Pacific (TPIA) lost 19.92 percent, and energy firm Barito Renewables Energy (BREN) dropped 15.46 percent. Banking stocks were also under pressure, with Bank Mandiri (BMRI) falling 5.98 percent, Bank Rakyat Indonesia (BBRI) sliding 4.44 percent, and Bank Negara Indonesia (BBNI) declining 5.08 percent.

“The combination of weakness in banking and conglomerate stocks, which have the largest weight in the index, has significantly eroded market resilience,” Hendra said.

The market is in a speculative phase, with uncertainties making investors nervous, according to Kiwoom Sekuritas Indonesia. Analysts cite mass layoffs before Eid and concerns over upcoming credit ratings from Fitch, S&P, and Moody’s. Downgrades by Goldman Sachs and Morgan Stanley have further hurt confidence.

Companies like Yamaha Music Product Asia and Adis Dimension Footwear have cut thousands of jobs, raising fears of a slowdown. Goldman Sachs also downgraded Indonesian stocks and bonds, citing fiscal risks from President Prabowo’s policies. Adding to the uncertainty are interest rate decisions in Indonesia, Japan, and the US, along with ministerial resignation rumors.

Global Market Challenges

External factors are also weighing on sentiment. Uncertainty surrounding the Federal Reserve’s interest rate policy has dampened risk appetite globally. If US inflation remains high, rate cuts could be delayed, making emerging market assets less attractive. In the past three weeks, US stock markets have erased $5.28 trillion in value, amplifying pressure on Asian markets, including Indonesia.

“Global investors are adopting a more cautious stance, slowing capital inflows into emerging markets,” Hendra said.

Global stocks have largely declined amid concerns that US President  Donald Trump's rapid-fire tariff announcements and policy shifts are fueling uncertainty, potentially causing US households and businesses to cut spending, which could weaken the economy. Surveys indicate a sharp drop in confidence, and some companies have begun warning of shifting customer behavior.

The Federal Reserve is due to announce its latest decision on interest rates on Wednesday or Thursday morning in Indonesia.

Outlook: More Volatility Ahead

From a technical perspective, the JCI remains in a bearish trend and could test the psychological 6,000 level in the coming days. However, a potential rebound is possible if key macroeconomic conditions improve, such as policy clarity from the government, greater certainty on global interest rates, and renewed foreign inflows.

“Investors are waiting for pro-market policies to restore confidence,” said Nafan Aji Gusta, a senior investment analyst at Mirae Asset Sekuritas. “With Indonesia facing deflation and a weakening rupiah, a strategic policy shift is needed to attract capital back into the market.”

Despite the turmoil, Jeffrey Hendrik, Director of Business Development at the IDX, said that valuations are attractive. “The P/E ratio of Indonesian stocks is now at 10, the lowest among ASEAN markets. Investors should assess fundamentals carefully and remain rational in their decisions.”