Indonesia market view: While the current knee-jerk weakness has been expected, we recommend investors to not join the selling spree, given the market has already been facing an overhang from negative domestic newsflow. We are waiting for attractive opportunities to enter the Indonesia stock market.

Under President Trump, Indonesia’s inflation is likely to head up further (through tariffs), with a higher fiscal deficit, and alongside a likely slower Fed rate cut and hence higher US treasury yields, this should also lead to higher Indonesia bond yields. These would result in foreign outflow risk from capital markets and rupiah volatility. On the positive side, potential lower oil prices could support Indonesia's current account and the country may attract more FDI thanks to the ‘China+1’ strategy.

Economic outlook and market reaction

A Trump administration could bring inflationary pressure, rising fiscal deficits, and slower rate cuts from the Federal Reserve. Higher US Treasury yields could drive Indonesia yields higher as well, potentially resulting in outflow risks and increased volatility for the rupiah. We would recommend not joining the selling spree.

Trade and China relations

Trump’s tariff policy aims to reduce the US trade deficit, which could result in a weaker Chinese yuan and potentially additional tariffs. China’s economic slowdown, driven by lower US export demand, could negatively impact Indonesia’s exports to China. However, China may respond with stimulus measures to stabilize its economy, partially offsetting these impacts for Indonesia.

Immigration, labor market impacts and oil price

Trump’s stricter immigration stance would likely tighten the US labor market, in turn increasing wage pressures and adding to inflation. This could lead to higher US yields, influencing global bond markets, including Indonesia’s.

The "Drill, baby, drill" approach from Trump may result in lower global oil prices, which could benefit Indonesia’s current account as it would reduce import costs. Stable oil prices would alleviate some inflationary pressures for Indonesia’s economy.

Foreign Direct Investment (FDI)

Indonesia stands to benefit from the "China +1" diversification strategy, as more companies look to shift operations outside China to avoid US trade barriers. Relocation of smaller companies could help boost Indonesia's FDI and strengthen its economic ties without entangling in US-China trade tensions.

Overall, while a Trump win may introduce economic uncertainties and short-term market volatility, strategic benefits—such as increased FDI under the "China +1" strategy and potential support for Indonesia’s current account from stable oil prices—could offer some longer-term advantages for Indonesia.

Fig. 1: Indonesia’s exports to China – growing rapidly in the past decade

Fig. 2: Indonesia oil imports and current account trend

Fig. 3: US' trade deficit by country - Indonesia staying below the radar

Fig. 4: ASEAN-5 impacts on GDP growth for 2025 under Trump 2.0 vs baseline. Indonesia is the least impacted

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Gerald Hugo (gerald.hugo@verdhana.id)

Jupriadi Tan (Jupriadi.tan@verdhana.id)