Indonesian stocks regained some ground on Monday after a sharp selloff, as the country’s newly established sovereign wealth fund, Danantara, announced its advisory team. The news helped ease investor concerns over governance and leadership issues, which had triggered a market downturn earlier in the day.
The Jakarta Composite Index (JCI) initially plummeted 4.7% before recovering to a 1.2% loss in late afternoon trading. Meanwhile, the rupiah weakened by 0.4% against the US dollar, inching closer to its lowest level since the 1998 financial crisis.
Key Appointments Boost Investor Confidence
Danantara, Indonesia’s sovereign wealth fund, revealed that former presidents Joko Widodo and Susilo Bambang Yudhoyono would serve as advisors. Their inclusion, alongside Bridgewater Associates founder Ray Dalio and former Thai prime minister Thaksin Shinawatra, reassured investors about the fund’s leadership and direction.
“There is a lot of noise and concern in the market, especially regarding the formation of Danantara’s team and management,” said Pandu Sjahrir, the fund’s Chief Investment Officer, during a press briefing on Monday. “Hopefully, today’s announcement provides clarity. Everyone involved is a professional.”
Market Turmoil and Partial Recovery
Indonesia’s stock market has been under pressure in recent months due to concerns over President Prabowo Subianto’s policies. His administration has begun transferring ownership of major state-owned enterprises to Danantara, which reports directly to him. Investors fear this move could lead to increased political influence over the economy.
Earlier in the day, the JCI saw its sharpest drop since March 18, when the index plunged 7.1%, triggering a 30-minute trading halt. The index remains one of the worst-performing in the world this year, down more than 12%.
Bond Yields Rise Amid Capital Outflows
The pressure extended to Indonesia’s government bonds, with the benchmark 10-year yield rising by 4 basis points. The spread between Indonesian and US 10-year bonds reached its highest level since September, reflecting growing risk aversion.
Foreign investors continued pulling money out of Indonesian markets. Global funds sold a net $142.3 million worth of Indonesian equities on March 21, marking the seventh consecutive session of outflows. In total, foreign investors have withdrawn over $2 billion from the country’s markets in 2024 alone.
Experts Weigh In on Market Outlook
Despite recent volatility, some analysts see potential for recovery. “We believe much of the de-risking has already taken place or been absorbed,” said Mohit Mirpuri, a fund manager at SGMC Capital Pte in Singapore. “Valuations are undemanding, pessimism is at extremes, and the risk-reward setup looks increasingly attractive.”
However, political developments remain a key concern. President Prabowo’s push to expand the central bank’s mandate has sparked debates over monetary policy independence, adding another layer of uncertainty to Indonesia’s economic outlook.
What’s Next for Indonesian Markets?
While Danantara’s leadership announcement has provided some relief, market stability remains uncertain. Investors will be closely monitoring further policy decisions and the fund’s investment strategy.
