Rahmat Hidayat – Indonesia's financial markets are facing a deeper challenge than a conventional market correction, according to political economy analyst Kusfiardi, who warned that investors are increasingly reassessing the country's overall risk profile as stocks and the currency remain under pressure.
Indonesia's benchmark Jakarta Composite Index (IHSG) has fallen nearly 40% from its January 2026 peak, while the rupiah has weakened beyond Rp18,000 per U.S. dollar, reflecting what analysts describe as growing concerns over the resilience of the country's financial system and investment climate.
"The market is not only correcting stocks and the rupiah. What is being reassessed is Indonesia's risk profile itself," Kusfiardi, Co-Founder of the FINE Institute and an analyst at Menteng Kleb, said in a statement on Monday. "The current turbulence should be viewed as something deeper than ordinary market volatility."
According to Kusfiardi, the scale of the market decline cannot be explained solely by external pressures such as a stronger U.S. dollar, geopolitical tensions, or elevated global interest rates.
While those factors have contributed to market stress, he argued that the severity of the correction highlights structural domestic vulnerabilities, including limited market depth and Indonesia's continued reliance on foreign capital flows.
One of the clearest examples emerged during the MSCI index rebalancing in May 2026, when the removal of several major Indonesian stocks triggered significant foreign capital outflows and intensified pressure on both equities and the rupiah.
"MSCI is not an Indonesian regulator. However, decisions made by global index providers can directly influence liquidity, capital costs, and perceptions of Indonesian market risk," Kusfiardi said. "This demonstrates how sensitive our market remains to decisions made by global financial actors."
He noted that the decline in Indonesian equities has been substantially larger than the depreciation of the currency. While the rupiah has weakened by roughly 10% since the beginning of the year, the IHSG has lost nearly four times as much from its peak.
The disparity suggests investors are not simply reducing exposure to the Indonesian currency but are repricing Indonesian assets more broadly, including expectations regarding growth prospects and investment risks.
"If the rupiah weakens by 10% while the stock market falls nearly four times further, then the message is much bigger than dollar strength alone," he said. "The market is reassessing Indonesia's prospects and risk environment."
Domestic investors have helped absorb part of the foreign selling pressure, but Kusfiardi cautioned against interpreting that resilience as evidence of a fully mature market structure.
Instead, he said the scale of domestic buying reflects the magnitude of the pressure currently facing Indonesian financial markets.
He also highlighted what he described as a shift in investor focus from liquidity concerns toward questions of institutional credibility.
Over recent weeks, Indonesia's government, Bank Indonesia, the Financial Services Authority (OJK), and the Indonesia Stock Exchange have introduced various stabilization measures, including foreign exchange interventions, bond market support, share buyback relaxations, and adjustments to trading regulations.
While these actions have helped maintain short-term stability, Kusfiardi said investors are now scrutinizing broader issues including policy credibility, regulatory certainty, governance standards, and the state's ability to safeguard financial system stability.
"The market is testing policy credibility, regulatory certainty, governance quality, and the state's ability to maintain financial stability," he said. "The challenge is no longer solely about liquidity. It is also about trust."
The FINE Institute said forecasts projecting a rapid recovery in the rupiah should be treated cautiously. Although a stronger currency could eventually be supported by renewed foreign capital inflows, higher export earnings, improved global sentiment, and recovering investor confidence, current market conditions do not yet provide sufficient evidence for a sustained rebound.
With the IHSG remaining in a sharp correction, the rupiah trading near its weakest level in two decades, and foreign capital outflows continuing, investors remain focused on underlying structural concerns.
"Markets do not operate on targets or expectations alone. Markets operate on trust," Kusfiardi said. "As long as the sources of investor concern remain unresolved, volatility will likely remain elevated."
He argued that the market turmoil seen between May and early June 2026 should serve as a catalyst for deeper reforms aimed at strengthening Indonesia's financial architecture.
Those reforms, he said, should include expanding domestic institutional investor participation, increasing market free float levels, improving governance standards, deepening financial markets, and providing stronger policy certainty.
"Without stronger domestic market foundations, every shift in global sentiment will continue to generate significant pressure on Indonesia's financial markets," Kusfiardi said. "The current volatility should become a turning point for building a more resilient financial system capable of withstanding external shocks."