Indonesia Markets Resume Trading Amid Heightened Global Market Volatility

Indonesia's Markets Face Volatility as Iran War Tensions Linger

Indonesia's markets are poised to experience fluctuating sentiment when they reopen on Wednesday, March 25, after a week-long holiday, as investors weigh rapidly shifting headlines on the Iran war and persistent concerns over fiscal and governance risks.

Indonesia's US-listed ETF has declined by approximately 2% since markets closed for Lebaran, the holiday marking the end of Ramadan. The Asean stock gauge fell by 1.8% during the break. Meanwhile, offshore rupiah forwards rose only by 0.3%, despite the central bank's intervention late last week to stem currency weakness, underscoring investors' reluctance to price in relief.

Market Outlook

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The recent developments suggest that Indonesia's cash markets will likely fluctuate amid Iran-war tensions, as President Donald Trump signals progress in Iran war negotiations even while deploying more troops to the Middle East. Elevated oil prices are adding to concerns after global ratings agencies cut the country's credit rating outlook and MSCI Inc. warned of a potential downgrade of its market status pending reforms to improve liquidity.

Economic Risks

Oil prices have largely held firm, though they slipped after Trump said Iran had offered a "present" as a show of good faith in negotiations. Inflation risks from elevated oil prices "complicate the policy backdrop, potentially raising the hurdle for regulators to push through proposed capital market reforms," said Gary Tan, portfolio manager at Allspring Global Investments in Singapore.

Investor Sentiment

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The Jakarta Composite Index was the world's worst performer this year, sliding more than 20% from its January peak into bear market territory amid concerns over earnings and economic growth. The rupiah and Indonesian bonds have also come under pressure. The currency weakened past levels seen during the Asian Financial Crisis to hit a record low after the credit rating agencies flagged eroding fiscal and policy credibility.

Market Performance

Indonesia's bond market has seen a net $1 billion outflow this month, on track for the largest since October. Global funds have also sold $510 million of the nation's stocks this year on a net basis, heading for the biggest quarterly outflow since June.

Potential Reprieve

A small reprieve may be in sight, with Trump seeking to negotiate with Iran and oil trading below its earlier peak. Indonesia also benefits from its status as a coal and palm oil exporter, while Bank Indonesia has also tightened rules on dollar purchases to stem rupiah pressure.

Market Volatility

Sentiment remains fragile, but a lot of "bad news" is priced in, said Mohit Mirpuri, senior partner at SGMC Capital in Singapore. "If the belief is that it isn’t a real macro breakdown or a systemic crisis like 1997 or 2008, history suggests recovery rather than collapse."