Indonesia treads with care

INDONESIA’S stock market heads into 2026 with a cautious tone, as investors await clearer signals on macroeconomic data, corporate earnings, and government policies.

Analysts see the first quarter (1Q26) as a potentially volatile period, but longer-term prospects remain tied to domestic economic recovery and policy execution.

Schroders, for one, notes that it is taking a more cautious stance at the start 2026, as it is still anticipating 4Q25 macro and corporate earnings data in hope for improvements post-stimulus rollout.

“Additionally, we remain vigilant on noises coming from the government policies’ side,” the fund manager adds.

It points out that uncertainties stemming from MSCI’s plan to revise its minimum free float requirements for index inclusion will linger at least until the end of January 2026, when MSCI will announce its official revision, to be implemented during the May 2026 rebalancing.

Retail investor sentiment has already turned slightly jittery, though Schroders’ primary concern lies in potential foreign passive outflows from blue-chip names should the MSCI revision go ahead.

“Hence, we view that 1Q26 should remain as a volatile period for equity market.”

Improving outlook

Despite this, Schroders believes the outlook could improve later in the year.

“Nevertheless, should noises from government remain contained and macro data and MSCI policies are favourable, we are looking for a better picture on equities for 2026 compared to 2025. Domestic recovery will likely be the key catalysts for equities,” it argues.

Positive investment themes highlighted by the fund include low-base corporate earnings in consumer and banking sectors, stimulus-driven increases in domestic purchasing power, and the finance ministry’s intention to refrain from new taxes while aiming for an 8% growth target.

Schroders also points to strong commodity prices, including crude palm oil (CPO) and gold, and relatively cheap valuations in the Jakarta Composite Index (JCI), which trades at around 13 times price-to-earnings (PE) but closer to 10 times when speculative names are stripped out.

Sector-wise, Schroders sees consumer companies as a clear focus for 2026, benefitting from top-line growth recovery and easing raw material costs.

Government programmes such as the free nutritious meal scheme should also support poultry stocks. Precious metals and metal mining remain attractive amid global macro uncertainty, while plantation names are supported by resilient CPO prices under the B50 biofuel programme and supply constraints.

In a weak rupiah environment, commodities are seen as favourable US dollar earners, and dividend stocks with stable growth as suitable defensive plays.

Higher target

Meanwhile, Maybank Investment Bank Group Research (Maybank IBG) shares an upbeat medium-term view, lifting its JCI year-end 2026 target from 8,800 to 9,250, citing a strong rally in retail-driven names since September 2025.

For 2026, the brokerage projects 10% earnings per share growth, implying a 12 times forward PE ratio at the target.

Maybank IBG highlights a key risk to this view: “the potential for more restrictive MSCI rules next year, which could reduce index weights and trigger outflows.”

The investment banking group also points to improving macro fundamentals. Its economics team has raised Indonesia’s gross domestic product (GDP) growth forecast to 5.1% for 2025 from an earlier projection of 4.9%, and 5.2% for 2026 from 5%, citing stronger domestic demand and continued fiscal support.

The 3Q25 GDP print at 5.04% year-on-year (y-o-y) and a 5.5% jump in government spending underline the momentum.

Fiscal backing will further intensify, with government consumption expected to rise from 3.1% y-o-y growth in 2025 to 7% in 2026, underpinned by priority programmes and a manageable 2.9% deficit. Investment is set to firm as well, with gross fixed capital formation projected to improve from 4.9% to 5.1% on falling rates and greater liquidity.

However, the labour market may temper the pace of consumption recovery.

Maybank IBG notes that while agricultural workers could see higher incomes from elevated soft-commodity prices, manufacturing and service sector workers face persistent uncertainty due to high informality and weak wage enforcement.

Expected nominal and real wage growth of 6% and 3% y-o-y, respectively, suggest only a modest recovery in household purchasing power, with limited discretionary spending.

The brokerage highlights investment themes linked to government initiatives, which provide stronger earnings visibility.

Bank Rakyat Indonesia is expected to benefit from higher government spending in rural and lower-income regions, while cement players such as Indocement Tunggal Prakarsa Tbk and Semen Indonesia (Persero) Tbk are positioned to gain from housing and infrastructure programmes including the 3M Housing Programme, Bantuan Stimulan Perumahan Swadaya, and Koperasi Desa Merah Putih.

Commodity names are aligned with national priorities, with Vale Indonesia Tbk benefitting from downstreaming and rising Class-1 nickel demand, and Medco Energi Internasional Tbk supported by upstream policy relaxation and strong gold and copper volumes from Aneka Tambang Tbk.

Bank Central Asia is expected to gain from improving corporate health, and poultry stocks like Japfa Comfeed Indonesia Tbk and Charoen Pokphand Indonesia Tbk stand to profit from tighter supply and government feeding programmes.

Overall, both Schroders and Maybank IBG underscore that Indonesia’s equity market remains tethered to domestic recovery, government policy execution and external factors such as MSCI revisions and global commodity performance. While volatility is likely in early 2026, the combination of stimulus support, favourable valuations and targeted sector opportunities could provide constructive investment avenues as the year progresses.