Our latest Semi-Annual Macro Letter offers our perspective on 2025. We discuss the key trends and challenges ahead, including how foreign flows and US policies could shape markets, providing insights for your investment planning.

To give you a quick overview, here's a summary of what we discuss:

Indonesia 2025: Fragile Growth, Rising Risks

Indonesia's 2025 economic outlook depends on coordinated fiscal and monetary policies to address weak consumption, trade risks, and Rupiah stability. While government spending and FDI offer some support, external uncertainties and structural issues require cautious policymaking. Consumer growth remains a concern due to weak demand, especially for low-end goods, risks in online lending and rural banking, and the impact of online gambling. Rate cuts risk capital outflows and Rupiah depreciation. Government spending will be crucial, but could lead to higher bond yields. Manufacturing faces challenges due to weak demand and global competition.

Foreign Flows Drive Investment Decisions

Elevated US Treasury yields make the Indonesian bond market reliant on central bank support and non-bank flows. Bank Indonesia's rate cut signals a shift towards growth, but the Rupiah remains vulnerable. Corporate bond spreads have compressed, requiring selective investment. Equity inflows are down, suggesting undervaluation, but careful stock selection is crucial.

Trump Policies Fuel Growth, But Pose Risks for Indonesia

The US economy is poised for growth due to strong labor markets and Trump's policies. However, the administration’s pro-industrial agenda could equally create deflationary pressures. For Indonesia, US protectionism and increased domestic energy production may reduce the trade surplus with the US and weaken the Rupiah.

USD Private Credit Continue to Outperform

USD Indonesian sovereign bonds offer yields comparable to investment-grade bonds, but carry Rupiah depreciation risk. While rate cuts may offer short-term gains, they may erode medium-term returns. We think USD private credit offers potentially higher, more sustainable returns compared to USD bonds in an easing cycle.

Read the full report here.