JAKARTA – The Indonesian capital market is poised for a significant uplift, with investment banking giant JP Morgan projecting the Indonesia Composite Stock Index (IHSG) to potentially breach the 10,000 level by 2026. This optimistic outlook comes as the US-based firm released its comprehensive ‘Indonesia Equity 2026 Outlook‘ report, received by Republika on Tuesday, December 2, 2025.
According to Henry Wibowo, JP Morgan Indonesia’s Head of Indonesia Research & Strategy, this bullish forecast hinges on several key factors. Primarily, the market is expected to thrive once the political transition period of 2025 has concluded, allowing for greater stability. Furthermore, the increasingly optimal role of the National Investment Management Agency (Badan Pengelola Investasi Daya Anagata Nusantara, or BPI Danantara) is anticipated to be a major catalyst for growth.
Wibowo elaborated in the report, “Following the political transition year in 2025, we project a brighter prospect for Indonesian equities in 2026.” He added that higher government spending, fueled by both the fiscal budget and Danantara’s initiatives, is expected to invigorate economic growth and domestic consumption. This domestic impetus will be further bolstered by improving global macroeconomic conditions and easing geopolitical tensions, creating a conducive environment for Indonesia’s economy.
For its base case, JP Morgan sets the IHSG target at around 9,100–9,200 by the end of 2026. This projection is built on assumptions of an 8 percent earnings per share (EPS) growth and a price-to-earnings (P/E) ratio of 15 times. Highlighting the potential extremes, Wibowo also noted “pull and bear cases” for the index at 10,000 and 7,800, respectively, demonstrating a broad spectrum of possible outcomes for the Indonesia stock market.
On the monetary front, JP Morgan anticipates a continuation of the monetary easing trend. This follows an expected 125 basis points (bps) reduction in Bank Indonesia (BI) benchmark rates throughout 2025. The firm forecasts an additional 50 bps cut in BI’s benchmark interest rates next year, which is expected to improve system liquidity and further support investment sentiment. Despite these changes, the current account deficit is projected to remain well-controlled, staying below 1 percent of the Gross Domestic Product (GDP).
However, Wibowo cautioned that the primary downside risk remains rupiah volatility, which could erode business and consumer confidence, potentially leading to capital outflows if depreciation persists. Addressing sectoral opportunities, JP Morgan has an “overweight” (OW) recommendation for several key sectors heading into the new year, including Industrials, Materials, Consumer Staples (non-cyclical), Consumer Discretionary (cyclical), and Property, signaling confidence in their growth prospects within the Indonesia investment outlook.
In terms of specific large-capitalization stocks, JP Morgan recommends five top picks: PT Bank Central Asia Tbk (BBCA), PT Astra International Tbk (ASII), PT Indofood CBP Sukses Makmur Tbk (ICBP), PT GoTo Gojek Tokopedia (GOTO), and PT Aneka Tambang Tbk (ANTM). These selections reflect the firm’s conviction in their potential for strong performance within the broader market recovery.
Delving into investor participation, the retail sector is expected to maintain its high engagement in the first half of 2026. Domestic retail participation, alongside quantitative funds, reached record highs in the second half of 2025, mirroring the trends observed during the Covid-19 pandemic in 2020. This surge was primarily driven by the resurgence of conglomerate-linked and index-linked stocks. Nonetheless, Wibowo noted a potential decline in retail activity in the second half of 2026, depending on the new MSCI Adjusted Free Float definition, which is likely to be announced in the first quarter of 2026 and implemented in May 2026.
Conversely, JP Morgan projects a substantial increase in equity inflows from institutional investors throughout 2026. This influx is anticipated to be driven by new public investment mandates from Danantara, coupled with increased equity asset allocation from domestic pension funds and state-owned pension funds. These developments are set to inject significant capital into the Indonesia stock market.
Danantara itself is identified as a potential “value enhancer” for Indonesia. JP Morgan commends the clear separation of duties within Danantara, specifically between its holding company (BPI Danantara), the Asset Management Division (DAM), and Investment Management (DIM). The firm emphasizes that separating public service obligations from the profitability drive of state-owned companies is crucial for their long-term success. Danantara’s execution in 2026 is seen as a critical catalyst for a valuation re-rating and could become a decisive factor for the entire market. Its independence from the fiscal budget allows it to generate revenue, enhance external funding, execute strategic investments, and implement government spending initiatives to propel economic growth, positioning it as a pivotal player in Indonesia’s investment outlook.
Summary
JPMorgan projects the Indonesia Composite Stock Index (IHSG) could reach 10,000 by 2026, setting a base case target of 9,100–9,200 for the end of 2026. This positive forecast is driven by the conclusion of the 2025 political transition and the anticipated optimal role of the National Investment Management Agency (BPI Danantara). Higher government spending, improving global macroeconomic conditions, and continued monetary easing by Bank Indonesia are also expected to fuel economic growth and market stability.
JPMorgan anticipates an additional 50 basis points cut in BI’s benchmark interest rates next year, further supporting investment sentiment. While rupiah volatility remains the primary downside risk, the firm recommends an “overweight” position in sectors such as Industrials, Materials, and Property. Institutional equity inflows are projected to significantly increase throughout 2026, primarily from Danantara’s new public investment mandates and increased allocation from domestic pension funds.