Indonesian equities are approaching a cyclical bottom; prioritize oversold blue chips and resource stocks

Overview

The report assesses how far the Indonesian equity market is from a bottom across dimensions including macro fiscal conditions, exchange rates and inflation, the earnings revision cycle, foreign holdings, valuations, and commodity supply and demand. Since 2026, rising oil prices, fiscal deficit concerns, policy uncertainty, and broad earnings downgrades have driven IDR weakness and equity valuation derating. JPMorgan believes the market has already reflected a large amount of pessimism, marginal selling forces may weaken, and lower oil prices, resource supply constraints, and low foreign holdings create conditions for a rebound. It therefore recommends a tiered allocation to oversold quality blue chips and resource, consumer, telecom, and natural gas companies with bottom-up catalysts.

Core views

Indonesian equities have not yet seen broad-based earnings upgrades, but valuations and positioning are already close to pessimistic levels, and the market is more likely to enter a stock-picking phase rather than a broad rally. Commodity companies have US dollar revenue, low-cost resources, and strong capital return capabilities, and they benefit from Indonesia's dominant position in nickel, coal, and palm oil supply, so their long-term relative performance is expected to continue. The biggest short-term constraints come from fiscal and policy risks, including resource taxes and fees, export levies, and centralized export management; consumers face currency depreciation and rising US dollar-denominated input costs. In allocation, priority should be given to blue chips with good asset quality, deep valuation discounts, and potential benefits from foreign inflows, while also focusing on second-tier companies with independent earnings catalysts.

Analysis framework

The report cross-validates 2027 fiscal budget scenarios, the transmission of oil prices to fiscal conditions and consumer companies, historical earnings revisions and stock returns, long-term sector earnings and total returns, changes in foreign holdings, relative valuation ranges, commodity supply-demand balances, cost curves, and company earnings forecasts, and translates macro turning-point judgments into tiered allocations for specific stocks.

Methodology notes

• Macro Scenario AnalysisFiscal Budget and Oil Price Sensitivity Analysis

  Assess fiscal space through assumptions on revenue, expenditure, deficits, economic growth, and inflation.

  The report compares the 2026 budget with low, mid, and high scenarios for 2027, and analyzes the impact of oil price changes on subsidies, the fiscal deficit, IDR, inflation, and corporate costs.

• Earnings Cycle AnalysisEarnings Revision Cycle and Return Analysis

  Observe whether upgrades or downgrades in consensus earnings expectations can transmit to stock returns.

  The report reviews historical earnings upgrade cycles and compares the commodity upcycle environments of 2016, 2017, and 2022 with 2026 to judge when this round of earnings downgrades may bottom.

• Industry Fundamental AnalysisCommodity Supply-Demand Balance and Cost Curve

  Use supply-demand gaps, capacity additions, resource quotas, and cost percentiles to assess commodity prices and corporate profits.

  The nickel analysis covers ore quotas, LME prices, and RKEF and HPAL capacity; the aluminum analysis covers Middle East restarts, demand, inventories, alumina disruptions, and new capacity.

• Market Structure AnalysisValuation and Foreign Holding Analysis

  Use historical valuation ranges, liquidity, and foreign holdings to identify oversold levels and potential beneficiaries of incremental capital.

  The report believes current valuation discounts for quality companies are large and foreign holdings are low; if capital flows back in, liquid blue chips may benefit first.

• Company Comparative AnalysisTiered Stock Selection Framework

  Allocate in tiers between beneficiaries of market inflows and targets with independent company-specific catalysts.

  ASII, BBCA, and ANTM are listed as the first tier; INDF, ISAT, PGAS, and MDKA are listed as the second tier. ANTM is the top pick in the nickel sector, while INCO is more of a long-term opportunity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ANTM

  First-tier target and top pick in the nickel sector

  Strengths

  Has about 10% of Indonesia's nickel reserves, with relatively high ore grades; its gold brand logam mulia is the only local gold brand accredited by LBMA, with a market share above 50%; FY25–FY27 earnings are expected to grow rapidly.

  Weaknesses

  Earnings are sensitive to nickel ore quotas, ore sales volumes, nickel prices, and regulatory policy.

  Comparison

  Compared with INCO, ANTM's near-term earnings benefit more directly from ore sales, while the gold business provides additional support.

  Risks

  Increases in resource taxes and fees, export levies, centralized export management, falling nickel prices, and project execution below expectations.

• INCO

  Long-term nickel value chain allocation target

  Strengths

  Has high-quality nickel resources and can benefit over the long term from the expansion of Indonesia's nickel value chain and improvement in nickel supply-demand.

  Weaknesses

  Short-term earnings are highly related to gross profit per tonne, project construction, and nickel prices, with a longer realization cycle.

  Comparison

  Near-term catalysts are weaker than ANTM's, making it more suitable as an allocation for long-term nickel prices and capacity growth.

  Risks

  New HPAL supply, continued surpluses in secondary nickel and nickel sulfate, capital expenditure, and project delay risks.

• ASII

  First-tier oversold blue chip and potential beneficiary of foreign capital inflows

  Strengths

  Business covers automobiles, financial services, heavy equipment, mining, agriculture, and infrastructure; strategic reviews may improve shareholder returns and drive valuation rerating.

  Weaknesses

  Four-wheeler retail demand is weak, and the auto business faces intensified competition and dealer inventory pressure.

  Comparison

  Compared with single-industry companies, ASII has diversified businesses and better liquidity, making it more suitable as a core Indonesia market exposure.

  Risks

  Weak auto demand, market share decline due to competition, inventory adjustments, and macro growth below expectations.

• BBCA

  First-tier quality blue chip and proxy for foreign capital inflows

  Strengths

  Blue-chip characteristics, market liquidity, and relatively low foreign holdings may allow it to benefit first when overseas funds return.

  Weaknesses

  The formal rating listed in the report is Neutral, and its valuation remains higher than most covered companies.

  Comparison

  Compared with resource stocks, BBCA provides purer exposure to Indonesian domestic demand and capital inflows, but lacks commodity price catalysts.

  Risks

  Weak earnings growth, valuation compression, deterioration in the liquidity environment, and macro credit risk.

• INDF

  Second-tier consumer target

  Strengths

  Low valuation, strong brands and product portfolio, and a company-level earnings recovery logic.

  Weaknesses

  Raw material costs are mostly linked to the US dollar; price increases can stabilize sales but may not fully offset margin pressure.

  Comparison

  Compared with first-tier blue chips, its catalysts depend more on cost declines and company earnings improvement.

  Risks

  IDR depreciation, rising food raw material prices, weak consumer demand, and intensified competition.

• ISAT

  Second-tier telecom target

  Strengths

  Has an independent bottom-up investment case and may benefit from a recovery in market risk appetite.

  Weaknesses

  Not a direct beneficiary of the report's macro and commodity main themes.

  Comparison

  Compared with resource stocks, its returns depend more on operational improvement than rising commodity prices.

  Risks

  Competition, capital expenditure, earnings expectation cuts, and market liquidity risk.

• PGAS

  Second-tier natural gas target

  Strengths

  Attractive valuation and dividend yield, with room for company-level value rerating.

  Weaknesses

  The business is significantly affected by energy policy, gas sources, and regulated pricing.

  Comparison

  Compared with nickel and coal companies, its earnings drivers come more from the natural gas business and high dividends than from the global metals cycle.

  Risks

  Regulatory policy, gas supply, energy price volatility, and earnings growth below expectations.

• MDKA

  Second-tier metals growth target

  Strengths

  Has growth exposure related to copper, gold, and nickel, with strong earnings leverage when commodity prices rise.

  Weaknesses

  Valuation is higher than some mature resource companies, and earnings and cash flow are significantly affected by project execution.

  Comparison

  Compared with ANTM, MDKA has stronger growth but also higher project, financing, and execution risks.

  Risks

  Project delays, capital expenditure overruns, financing pressure, falling metal prices, and regulatory changes.

• PMAH

  ASEAN aluminum sector Overweight target

  Strengths

  Slow Middle East restarts, steady demand, and tight global inventories are expected to support aluminum prices at high levels and drive earnings upside.

  Weaknesses

  Valuation is higher than most Indonesian resource stocks, and fluctuations in alumina prices and smelting margins may affect earnings.

  Comparison

  Compared with Indonesian nickel stocks, PMAH provides more direct aluminum price exposure and regional diversification.

  Risks

  Aluminum supply recovery faster than expected, new Indonesian capacity, demand slowdown, and rising costs.

Key data

• Foreign net outflows in 2026About US$4 billionShows that international investor holdings and risk appetite have declined significantly.
• JCI year-to-date performance-26%The report believes a large portion of the decline has come from valuation multiple derating.
• IDR year-to-date performanceDepreciated about 7%Mainly affected by fiscal concerns triggered by rising oil prices and policy uncertainty.
• Indonesian equity returns over the past decade-12% in local currency terms, -30% in US dollar termsMSCI EM returned about 102% over the same period, indicating significant long-term relative underperformance.
• One-year forward earnings growth over the past decadeIndonesia 24%, MSCI EM 91%The earnings growth gap is an important reason for poor long-term relative returns.
• Magnitude of earnings downgrades in 2025–2026Peak-to-trough decline of more than 20%Apart from the COVID-19 period in 2020, this is one of the most severe downgrade cycles in history.
• 2027 budget deficit assumption1.8%–2.4% of GDPNarrower than the 2.68% in the 2026 budget, but the revenue growth target is relatively aggressive.
• Indonesia commodity supply shareRefined nickel about 65%, seaborne thermal coal about 50%, palm oil about 60%Its supply control capabilities provide a strategic advantage for local resource companies.
• Coal, nickel, and palm oil exportsAbout US$100 billionAbout 6% of GDP and 35% of national exports.
• ANTM earnings growth expectationFY25–FY27 compound growth rate of about 44%The company's payout ratio was 100% in each of the past two years, with ore sales and the gold business as the main supports.

Impact & implications

At the market level, low valuations, low foreign holdings, and potential exhaustion of selling pressure mean downside for Indonesian equities may narrow, but whether a rebound can be sustained depends on earnings expectations stabilizing and policy risk premiums falling. At the industry level, nickel, coal, and aluminum are supported by supply constraints and cost advantages, and resource stocks may still outperform; if oil prices and the IDR remain elevated, they will continue to suppress fiscal space and margins for consumer companies. At the portfolio level, a tiered approach combining core blue chips with resource growth targets is appropriate, while avoiding broad bottom-fishing based only on low valuations.

Risks

• A renewed rise in oil prices may increase fiscal pressure, push up inflation, and exacerbate IDR depreciation.
• The government may raise resource royalties, implement export levies, or centrally manage exports through Danantara, thereby increasing the risk premium for commodity companies.
• The 2027 budget revenue and economic growth targets are relatively aggressive; if revenue falls short, the government may cut spending or adopt additional revenue-raising measures.
• Earnings expectations for Indonesian companies have not yet clearly bottomed, and the 2025–2026 downgrade cycle may continue.
• Market liquidity is relatively thin; if foreign investors continue to exit, blue chips may still face valuation pressure.
• HPAL capacity will continue to come online through 2028, and surpluses in secondary nickel and nickel sulfate may suppress returns for some nickel projects.
• A recovery in aluminum and alumina supply or new capacity faster than expected may weaken prices and smelting margins.
• Consumer companies face risks such as US dollar-denominated input costs, currency depreciation, intensified competition, and insufficient pricing power.

What to watch

• Foreign net flows and changes in foreign holdings of blue chips such as ASII, BBCA, and ANTM.
• Whether the magnitude of Indonesian companies' consensus earnings downgrades narrows and turns into upgrades.
• The interaction among international oil prices, IDR, inflation, and the fiscal deficit.
• Final 2027 budget assumptions for revenue, expenditure, deficit, and economic growth.
• Whether nickel ore quotas remain near 260 million to 270 million wet tonnes, and the performance of LME nickel prices.
• Commissioning progress of RKEF and HPAL projects and supply-demand balances across nickel product categories.
• Developments in resource royalties, export levies, and Danantara's centralized export policy.
• Middle East aluminum capacity restarts, global aluminum inventories, and new aluminum and alumina capacity in Indonesia.
• Auto dealer inventories, four-wheeler demand, and results of ASII's strategic review.
• Consumer companies' price increases, raw material costs, and gross margin changes.