Investors are beginning to reallocate capital into the Indonesian stock market as the global rally in artificial intelligence (AI) stocks shows signs of slowing. The Jakarta Composite Index (JKSE) has fallen 28% this year, making it the worst-performing major market in Asia for 2026. This decline followed more than $4 billion in foreign outflows driven by concerns over fiscal discipline and a potential downgrade from index provider MSCI.
Market analysts report that the recent downturn has lowered valuations to attractive levels for bargain seekers. David Chao, a strategist at Invesco, stated that the firm has been taking profits from South Korean electronics and purchasing Indonesian equities. Asset manager Allan Gray also reported making its first Indonesian investment last month, citing low price-to-earnings ratios for consumer goods companies.
Despite the recent 10% rebound in the Jakarta benchmark during July, some analysts remains cautious. Arthur Budaghyan of BCA Research noted that structural concerns regarding President Prabowo Subianto's welfare policies and the country's fiscal health remain high. While most analysts expect Indonesia to maintain its emerging-market status in an upcoming November MSCI review, the rupiah has remained under pressure, down nearly 8% for the year.