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If investors are pulling funds out of Indonesian assets, or are reluctant to enter the market even though there is money to be made, what does that say about their confidence in the country’s prospects?
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A teller counts rupiah banknotes on Oct. 27, 2025, at the BNI Pasar Baru branch in Jakarta. (Antara/Muhammad Adimaja)
A
n additional 4.2 percent drop in the local stock market on Friday closed a week we would rather forget about, one in which the rupiah plunged with ease through the psychological threshold of 18,000 per United States dollar to a new all-time low, while our trade surplus almost evaporated.
A currency’s exchange rate does not reflect the general health of the domestic economy, nor do stock market valuations accurately track the earnings prospects of listed companies, but they both say a lot about investor sentiment, and that, in turn, has real economic consequences.
The Indonesia Stock Exchange (IDX) Composite index has dropped more than 21 percent from a year ago, while its Philippine counterpart dropped less than 7 percent. The benchmark indexes of Malaysia, Vietnam and Thailand gained around 12, 37 and 39 percent, respectively.
The rupiah, meanwhile, is the worst-performing Asian currency year to date.
Ironically, when looking at the price-to-earnings (P/E) ratio, IDX stocks are considered undervalued, as is the rupiah, when looking at the real effective exchange rate (REER).
The government likes to remind reporters that the negative valuations do not reflect the so-called economic and corporate fundamentals, but it should ask itself this: If investors are pulling funds out of Indonesian assets, or are reluctant to enter the market even though there is money to be made, what does that say about their confidence in the country’s prospects?
In the familiar tug-of-war between greed and fear in financial markets, fear currently appears to be prevailing, with investors demanding a higher risk premium to put money into the country.
