A dramatic turnaround in just one month! The Indonesian stock market moves from a "five-year low" to a "technical bull market"

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After months of sell-offs, Indonesia's stock market has completed a dramatic reversal, rebounding strongly from the five-year low hit last month and officially entering bull market territory. Valuation recovery, quick regulatory intervention, and gradual return of foreign capital have jointly driven this transformation.

The Jakarta Composite Index is still down about 29% year-to-date, but according to LSEG data, the index has rebounded more than 10% since the early June low, reaching the threshold for a bull market.

A few weeks ago, S&P Global confirmed that Indonesia retained its BBB sovereign credit rating with a stable outlook, further boosting market sentiment. Mohit Mirpuri, Senior Partner at SGMC Capital, stated, "S&P's confirmation eliminated a major macro uncertainty. Over the past month, market pricing logic has shifted from reflecting deteriorating fundamentals to reflecting a stabilization in corporate fundamentals."

The rebound is significant for investors — previously, Indonesia's stock market was under dual pressure from governance disputes and foreign capital exodus, with market confidence dropping to freezing point. With multiple positive factors coming together, market sentiment has substantively changed, providing emerging market investors an opportunity to re-evaluate Indonesian assets.

MSCI postpones downgrade, panic selling curbed

For most of 2026, Indonesia's stock market was in a state of extreme volatility, triggered by index compiler MSCI questioning corporate governance at several Indonesian companies, and contemplating downgrading Indonesia from an emerging market to a frontier market. Indonesia's longstanding issues of low free float and excessive equity concentration are the core concerns for MSCI.

According to CNBC, Gareth Leather, Senior Economist at Capital Economics, said MSCI's decision to postpone the downgrade was "a great relief" to investors, effectively curbing panic selling. Meanwhile, some investors took profits from overvalued AI and tech stocks and shifted funds toward markets with more attractive pricing.

The effect of undervaluation emerges, foreign capital rekindled

As stock prices continued to fall, Indonesian equities' valuation became increasingly attractive. Liza Camelia, Head of Research at Kiwoom Sekuritas Indonesia, told CNBC, "After months of large-scale sell-offs, Indonesian stocks have become too cheap to ignore."

Positive signals on the fiscal front have also injected confidence into the market. Camelia pointed out that government tax revenue rebounded strongly in the first half of the year, with fiscal income exceeding expectations, alleviating previously feared fiscal risks — the actual situation turned out better than expected.

Proactive moves by Indonesia's financial regulators are another key support for the rally. Regulators have introduced measures to raise minimum free float ratios and strengthen equity information disclosure requirements, directly responding to concerns of insufficient liquidity and lack of transparency.

Jeemin Bang, Associate Economist at Moody's Analytics, said these measures help "resolve weak market liquidity and the transparency and equity concentration issues caused by it — these were the very problems that previously led some investors to exit the market." Regulators' quick response has, to some extent, rebuilt basic market trust in Indonesia's capital market regulatory environment.

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