This December has been quite a rollercoaster for Indonesia’s capital market. Foreign investors have been selling off their positions in Indonesia, looking to build up portfolios in developed markets. This has put pressure on the Rupiah, and the market has seen deeper corrections as global investments are being rebalanced.

Interest Rates - One Held Steady, One Lowered

Both Bank Indonesia (BI) and the U.S. Federal Reserve (Fed) made their final interest rate decisions for the year, taking different paths:

  • Bank Indonesia: BI kept the BI-Rate steady at 6%, focusing on stabilizing the Rupiah amidst global uncertainties.
  • The Federal Reserve: The Fed cut rates for the third time this year by 0.25%, bringing the Fed Funds Rate to 4.5%. Their goal is to support economic activity, but they’re staying cautious due to sticky inflation.

BI’s decision to hold rates seems like the right move for now, as it helps stabilize the Rupiah in the short term. Looking ahead to 2025, BI is taking a "wait-and-see" approach. We believe strong demand from the real sector and controlled inflation would give BI the appetite to carry out the rate cuts as it would help boost the economy and play a role to strengthen the Rupiah.

The Fed’s cuts align with their less restrictive stance, but inflation remains stubbornly high above their 2% target. They held a cautious tone as they project to only make two more cuts in 2025, but fiscal policies under President-elect Donald Trump—like tariffs, tax cuts, and mass deportations—could complicate things and push inflation even higher. This supports our views that rates will stay “higher for longer.”

How are the markets reacting?

Markets did not take the news positively. Both Indonesian and U.S. stock markets significantly declined. Bond yields rose as prices fell, reflecting the inverse relationship between the two. At the same time, the US Dollar strengthened, which led to further depreciation of the Rupiah. Together, these developments pushed Indonesian markets back to their August levels, erasing recent gains.

Simpan Views

Embracing Continued Market Volatility

Looking ahead, we expect continued market ups and downs. The Rupiah is likely to face additional pressure in Q1 2025, as global uncertainty remains high. Foreign investors are accelerating their pullout from Indonesian equity and bond markets, which will likely add to the strain.

How are your portfolios looking?

For equities, we are focusing on defensive stocks tied to non-discretionary consumption and medium-for-consumption retail. We’re also favoring companies with high U.S. Dollar exposure, such as thermal coal with a stable outlook that yields attractive dividend yields, which can benefit from a strong Dollar. We are also focusing on individual stocks that are less dependent on foreign flows, adding resilience and potential capital gains to the portfolio. 

For fixed income, we are sticking to short-to-medium duration bonds given the attractive yield. These bonds tend to be less sensitive to rate changes and tend to hold up better during volatile periods.

Remember to stay invested

Market turbulence requires careful navigation and disciplined adjustments, but with the right approach, we aim to protect and grow your investments while keeping you on track toward your financial objectives. Even in uncertain times, staying invested is key to achieving long-term financial goals. 

Carrying out a Dollar-Cost-Averaging (DCA) strategy is recommended and would play out well especially for long-term investors where a fixed amount is invested at regular intervals to reduce the impact of market volatility. The Simpan Sustainable Equity Fund is well-suited for long-term growth, aligning with sustainable investment principles while building wealth over time.

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