The Indonesia Composite Index (IHSG), which weakened by more than one percent at the close of trading on Monday (Sep. 8) following the change of Minister of Finance, illustrates how shifts in government policy can directly affect capital market movements. Pressure mainly came from banking stocks, which carry significant weight in the IHSG, making turbulence in this sector immediately impactful.
According to Universitas Gadjah Mada (UGM) economist Dr. Rijadh Djatu Winardi, the recent market fluctuations are largely driven by short-term sentiment rather than fundamental changes.
“A decline of more than one percent in the IHSG is still reasonable, given that Mrs. Sri Mulyani was well-regarded by the market and had a strong reputation for maintaining fiscal discipline. So when the change was announced, a small shock was to be expected,” said Dr. Winardi on Friday (Sep. 12).
The banking sector was reported as the hardest hit by the stock market downturn, as many banks represent the largest market capitalization within the IHSG.
Dr. Winardi explained that this condition highlights the close link between fiscal policy stability and the performance of the banking sector. Investors often view banks as a key barometer of the economy, meaning that any uncertainty is quickly reflected in their stock movements.
He added that banking frequently serves as a leading indicator of national macroeconomic conditions.
“The market perceives fiscal and monetary stability as closely tied to banking. When uncertainty arises about policy direction after the finance minister’s replacement, bank stocks are automatically exposed, as they are seen as highly sensitive to macroeconomic risks,” he explained.
Despite this, Dr. Winardi noted that the decline was more indicative of a short-term shock than a medium-term threat. He emphasized that the market is still digesting the situation and has not shown signs of fundamental economic weakness.
This phenomenon aligns with the general pattern that markets typically react more strongly to political issues before eventually adjusting. Domestic investors even tend to use downturns as opportunities to accumulate blue-chip stocks.
“As long as the market sees that this change remains favorable, I think the impact will not be prolonged,” he said.
Furthermore, the market’s rebound in the following days shows that investor optimism remains intact. Buying activity in banking stocks reflects confidence in the sector’s strong fundamentals. The temporary correction instead became a momentum for some investors to re-enter, steering the market back to a positive direction.
“Stocks with this profile are generally more resilient to short-term volatility and remain attractive for medium-term investors,” Dr. Winardi remarked.
On the other hand, fiscal policy continuity is key to maintaining market stability. Dr. Winardi stressed that the new Minister of Finance’s priority should be to provide certainty regarding policy direction and deliver communication that reassures both the public and market participants.
This includes clarity on short-term strategies and a consistent long-term fiscal policy outlook. Transparency regarding government programs will serve as an essential signal to investors that risks are being managed properly.
“Policy communication plays a critical role in sustaining positive sentiment. An imprecise statement could easily be misinterpreted by the market as a negative signal,” the expert cautioned.
He further emphasized that maintaining Indonesia’s capital market appeal amid global and domestic uncertainties requires fiscal consistency, regulatory certainty, and clear policy communication.
The new Minister of Finance must also ensure that adopted policies continue to support a conducive investment climate. In addition, building credibility from the outset is crucial to instill confidence in the new leadership.
“The new minister should uphold fiscal stability, regulatory certainty, and reassuring policy communication to maintain investor confidence,” Dr. Winardi concluded.
Author: Triya Andriyani
Post-editor: Rajendra Arya
Photographs: Freepik and FEB UGM