 Author : Felice Vincent | Editor: Ivan Rosanova The Indonesian Composite Stock Price Index (IHSG) experienced an exceptionally severe decline during the first half of 2026. Using closing prices, IHSG fell approximately 41.5% from 9,134.70 on 20 January to 5,342.14 on 8 June. Since then, however, the index has started to recover. IHSG closed at 6,334.48 on 22 July, implying an increase of ~18.6% from its June low but still remained around 30.7% below its January peak. This leads investors to the question of: ‘Is the recent IHSG rebound the beginning of a sustainable market recovery or is it a temporary rally within a larger bearish trend?’ Current Market Situation as of 24 July 2026.  The Catalysts Behind the Crash and Rebound 1. MSCI’s Warning and Removal [Negative sentiment] A major trigger for the IHSG selloff was MSCI’s concern regarding the transparency of shareholding structures and the calculation of free float in Indonesian listed companies. In January, MSCI warned that insufficient progress could lead to lower weightings for Indonesian stocks or reclassification of Indonesia from Emerging Market to Frontier Market status. The market subsequently lost more than 8% over 2 trading days, erasing around US$80 billion in market value, due to Indonesian markets becoming more difficult and uncertain to access as an international investment market. Moreover, on May 13, MSCI announced the deletion of 6 companies from its Indonesia index. IHSG fell 2%, and affected companies lost approximately 10%. Passive funds tracking MSCI indexes would need to sell the deleted stocks, while active funds could also sell in anticipation of this selling pressure. However, as the deletion was widely anticipated. Therefore, some of the selling pressure may already have been reflected in prices first. 2. Middle East Conflict Effects on Oil and Rupiah [Negative sentiment] Rising escalation in the Middle East disrupted shipping through the Strait of Hormuz and pushed oil prices above US$100/barrel. Continuous increasing oil prices will increase Indonesia’s import bills, weaken the current account, raise inflation and place further pressure on the rupiah. Investors also became less optimistic about interest-rate cuts because lower Indonesian rates could encourage further capital outflows when global risk was already elevated. 3. Government Commodity Policy [Negative sentiment] Investor confidence weakened again in May following plans to increase state control over exports of commodities such as coal, ferroalloys and palm oil. The policy plans to bring strategic commodity exports under a centralised system managed by PT Danatara Sumberdaya Indonesia (DSI). The government argued that the system could prevent revenue leakage and allow Indonesia’s natural resources to benefit the wider population. However, investors worried that centralised exports would affect private commodity companies’ pricing, quantity, contracts, shipping and payment terms. Hence, further reducing margins for private commodity companies. IHSG fell ~3.5% as the policy rumors affected the market. 4. Bank Indonesia & Government Efforts [Positive sentiment] Bank Indonesia unexpectedly raised interest rates, while authorities paused aggressive liquidity injections. The government also took steps to reduce fiscal pressure, including adjusting fuel prices and limiting the expansion of expensive spending programmes. As a result, the rupiah recovered by more than 1%, while IHSG gained almost 10% across 2 trading sessions. 5. Emerging Market Status Update [Short-term positive sentiment] On 23 June, MSCI allowed Indonesia to retain its Emerging Market status while extending its review up until November. This prevented an immediate downgrade and reduced the risk of large forced outflows. However, MSCI emphasised that what mattered was the ‘consistent implementation and sustained effect’ of the reforms. The upcoming November review still remains an important risk as underlying transparency concerns are still present. 6. Global Investors [Cautiously positive sentiment] Some international investors had started taking profits from expensive tech-driven markets and moving into cheaper, under-owned markets. Invesco strategist David Chao mentioned that Indonesia is still the most under-looked macro growth story play.’ BNY Investments also argued that much of the negative news may have been reflected in Indonesian share prices. However, its strategist noted that a stronger investment case would still depend on the stabilising of rupiah and attractive valuations. 7. Incentives from Bank Indonesia [Positive sentiment] As of 22 July, Bank Indonesia (BI) held its policy rate at 5.75% instead of delivering another expected increase. BI introduced incentives that reduced foreign-exchange hedging costs and encouraged portfolio inflows. As stated by BI’s Governor, Perry Warjiyo, BI chose ‘Not to hike rates but increase incentives to attract the flow of foreign portfolio’. The rupiah strengthened slightly after the announcement. BI also reported US$8.5 billion in foreign portfolio inflows during the second quarter, although these flows were mainly directed toward government securities and Bank Indonesia instruments rather than equities. Charts Analysis     Conclusion:
Overall, the July rebound appears to be more than a brief oversold bounce, as IHSG has formed a higher low and higher high while RSI remains above 50. However, the recovery is not yet a confirmed long-term reversal because the index remains below its 200-day and 20-month moving averages. The bullish case would strengthen if IHSG holds its 50-day SMA, reclaims 6,228, and breaks above the previous swing high near 6,454. Conversely, a decisive break below the 50-day SMA would suggest that the recovery is losing strength. Resources:
*All charts are adapted from the current market situation as of 23-24 July 2026 via TradingView |
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