‘Bolt From The Blue’ – Indonesian Stocks Halted Overnight After Biggest Loss Since 9/11

The opening of the Jakarta stock exchange for trading overnight was ugly… and they it got worse… fast.

Selling intensified into the late morning Tuesday, pushing Indonesia’s benchmark Jakarta Composite Index down by as much as 7.1%, the steepest intraday decline since 2011.

On a day when the rest of Asian equity markets rallied, circuit-breakers triggered trading halts in Jakarta.

Traders said the selloff wasn’t driven by any single catalyst, but rather a combination of factors including concerns over President Prabowo Subianto’s populist measures, forced liquidations and uncertainties over the finance ministry’s leadership.

“The selloff has been a bolt from the blue in many ways — the suddenness has caught the market by surprise,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital in Singapore.

“Prabowo’s anti-business measures could have escalated this situation, but now it seems like it was already loaded with a lot of negatives.”

The stock selloff triggered a 30-minute temporary suspension after losses in the benchmark index exceeded 5% for the first time since 2020.

“Foreign investors are clearly rattled by Prabowo’s troubling signals on budget reallocation and the Finance Ministry’s ability to maintain the overall fiscal discipline,” said Homin Lee, a senior macro strategist at Lombard Odier Ltd. in Singapore. 

“The recent weakening of the government revenue collection and the resulting early deficit appear to be reviving the market’s worry about the future in the cabinet.”

Factoring in Tuesday’s plunge, the nation’s stock market has tumbled 12% this year, the second-worst major equity index in the world after Thailand. Overseas investors have sold a net $1.6 billion of the nation’s shares this quarter, more than erasing all of last year’s inflows.

As Bloomberg reports, what makes international investors worry most about Indonesia, the region’s largest economy, is the largely unanticipated accumulation of power by Prabowo.

The new president has sought to divert funds into his priority projects, while cutting back on expenditure elsewhere, rattling investor confidence. As an example, the newly launched sovereign wealth fund Danantara — which has a direct reporting line to the president — said last month it would take over management of seven state-owned enterprises.

“Markets hate uncertainty, but they do like direction — now it’s up to policymakers to set the tone,” said Mohit Mirpuri, a fund manager at SGMC Capital Pte in Singapore.

Also sapping investor confidence Tuesday was speculation that widely-respected Finance Minister Sri Mulyani Indrawati had decided to resign.