Indonesia Equity Strategy: Offense wins games, defense wins titles

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Indonesia Equity Strategy: Offense wins games, defense wins titles

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economists' 2027 target of 2.7%) highlights a commitment to maintain fiscal steven.suntoso@jpmorgan.com

discipline going forward. We believe the shift is positive for investor PT J.P. Morgan Sekuritas Indonesia

confidence, as our marketing feedback highlighted that the market is favoring

stability in the near term. (See Table 1 for the 2027 fiscal posture.)

• Key concerns: growth and currency. First, the 2027 revenue delivery will

depend on two factors: GDP expansion tracking the government's target of

5.8%-6.5% and efficient capture of the taxation system. However, as fiscal

spending is reigned in, it could be challenging for growth to accelerate (JPM

forecast 4.9% for 2027, lower than govt plan). In our view, efficient spending

with a higher multiplier effect and a private-led expansion would be key to

achieving this. Danantara’s strategic investment into the Indonesian economy

could also contribute to closing the gap. Second, the government's USD/IDR

target range of 16,800-17,500 aligns with Bank Indonesia’s focus on

stabilizing the exchange rate. That said, risks remain for the IDR if: (1) US

exceptionalism prolongs USD strength, (2) investment outflows continue, and

(3) rising imports weigh on the current account. Note that a weaker-than-

expected IDR could create pressure on interest payments expenditure, given

c.30% of Indonesia's public debt is in foreign currencies.

• Easing headwinds could help rebuild confidence. Foreign flows into

Indonesian bonds have improved remarkably, however, flows into equities

have remained negative (Figure 1). We believe equity investors will remain

cautious on macro headwinds as well as policy implementation and the broader