Jakarta. Indonesian stocks suffered a broad sell-off on Thursday as the rupiah breached the Rp 18,000-per-dollar mark and investors digested Moody's negative outlook on Danantara Investment Management, pushing the benchmark Jakarta Composite Index (JCI) down 1.70% or 101 points to close at 5,839.

The decline pushed the JCI back to levels not seen since the height of the Covid-19 pandemic. The benchmark last traded in a similar range in June 2021, when Indonesia was grappling with the Delta variant outbreak.

JCI traded between 5,644 and 5,924 during the session. Trading volume reached 38.9 billion shares with turnover of Rp 25.2 trillion ($1.39 billion) across more than 2.2 million transactions. Decliners overwhelmed gainers, with 623 stocks falling against 106 advancing, while 85 remained unchanged.

Pilarmas Investindo Sekuritas said that investors are currently focused on two key risks weighing on financial markets: escalating geopolitical tensions in the Middle East and growing concerns over Indonesia's economic outlook.

"Especially after the rupiah breached Rp 18,000 per US dollar and negative sentiment emerged surrounding Danantara," Pilarmas wrote in a research note on Thursday.

Pilarmas said the JCI's decline mirrored weakness across most Asian markets as tensions between the United States and Iran intensified.

Investor sentiment got worse after Iran launched an attack on Kuwait International Airport. At the same time, Israel signaled its readiness to coordinate with the US on further military action against Iran if necessary.

"The situation has raised concerns that the fragile ceasefire in the Middle East could unravel again, potentially threatening global economic growth," Pilarmas said.

The brokerage also pointed to rising global trade tensions. The United States is preparing additional tariffs of up to 12.5% on imports from 60 trading partners, including China.

"The move has triggered a strong response from Beijing and heightened investor concerns over the possibility of a broader trade war," Pilarmas said.

Domestically, investors remain concerned about the rupiah's continued weakness after it crossed the psychological Rp 18,000 threshold.

"That condition raises concerns about Indonesia's economic stability, particularly if pressure on the domestic currency persists over the long term," Pilarmas said.

Market sentiment was further dampened by Moody's Ratings' decision to assign a Baa2 investment-grade rating with a negative outlook to Danantara Investment Management (DIM), raising questions about Indonesia's broader investment risk profile.

Liza Camelia Suryanata, Head of Research at Kiwoom Sekuritas Indonesia, said investors are now paying less attention to Danantara's standalone credit quality and more to the message behind Moody's negative outlook.

She said that Moody's explicitly linked Danantara's negative outlook to Indonesia's sovereign risk outlook. "At first glance, the Baa2 rating appears supportive. However, the more important message lies in the strong linkage between Danantara's credit profile and Indonesia's sovereign risk," Liza wrote in a research note.

She said investors are not questioning Danantara's ability to meet its financial obligations. Instead, they are increasingly scrutinizing the economic fundamentals underlying Moody's assessment.

"The market is not afraid of Danantara. The market is asking a much bigger question: if Indonesia's sovereign outlook is negative, who will sustain Indonesia's investment narrative going forward?" Liza said.

Amid heightened global sensitivity to fiscal risks and external vulnerabilities, she said Danantara's success will ultimately depend on the government's ability to maintain macroeconomic stability and investor-friendly policies.

Across Asia, Japan's Nikkei 225 fell 1.4% to 67,470 as technology stocks came under pressure. SoftBank Group plunged 11.2%, while Shin-Etsu Chemical dropped 3.8%.

Hong Kong's Hang Seng Index lost 1.4% to 25,274, Shanghai Composite slipped 0.8% to 4,057, and South Korea's Kospi fell 1.8% to 8,639.

Wall Street also closed lower overnight. The S&P 500 retreated 0.7% from its record high for its first decline in 10 sessions, while the Dow Jones Industrial Average dropped 1.2% and the Nasdaq Composite lost 0.9%.

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