BY COMFORT OGBONNA
Global investors are beginning to shift their focus away from heavily favored artificial intelligence-linked markets and toward beaten-down equities, with Indonesia emerging as a potential bargain opportunity after a steep decline this year.
The move comes as the powerful rally in AI-related stocks shows signs of slowing, prompting some large investors to lock in gains in markets such as South Korea and Taiwan and search for cheaper alternatives. Indonesia’s stock market, which has been among the world’s worst-performing major markets in 2026, is attracting renewed attention despite ongoing concerns over economic policy, foreign investor confidence and a possible market classification review.
Indonesia’s benchmark stock index has fallen about 28% this year, pressured by concerns over fiscal management and uncertainty surrounding a potential review by global index provider MSCI. The decline has made Jakarta-listed shares increasingly attractive to investors looking for undervalued assets.
Meanwhile, South Korea and Taiwan have benefited from strong demand for artificial intelligence-related companies, driving their markets sharply higher. However, concerns over stretched valuations and the need for portfolio rebalancing have encouraged some investors to reduce exposure to AI-heavy markets and consider regions that have lagged behind.
“We have been taking some profits in South Korea and adding exposure to Indonesia,” said David Chao, Asia-Pacific global market strategist at Invesco in Singapore. “Indonesia remains one of the most overlooked macroeconomic growth opportunities.”
Investor sentiment toward Indonesian equities has started to improve after more than $4 billion in foreign capital outflows this year. The selling was fueled by concerns about MSCI’s transparency review and worries about the country’s fiscal outlook.
Some market participants believe much of the negative sentiment has already been reflected in stock prices.
“A significant amount of the negativity is already priced into equities,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Investments.
Mitra said that if valuations become even more attractive and the Indonesian rupiah stabilizes, investors could begin selectively increasing their exposure despite continued uncertainty surrounding the MSCI review.
Some fund managers have already started returning to Indonesian companies. Asset manager Allan Gray recently made its first investment in the country, purchasing shares of Indofood Sukses Makmur, the company behind one of Indonesia’s largest consumer food businesses.
Portfolio manager Rory Kutisker-Jacobson said the company’s valuation represented an attractive opportunity, noting that the stock was trading at a relatively low earnings multiple compared with its strong market position and steady cash generation.
Investors are also showing renewed interest in Indonesian banks and commodity producers. Financial institutions and mining companies have become preferred choices among some global funds seeking exposure to the country’s long-term economic growth.
The Jakarta Composite Index has gained more than 10% so far in July, outperforming several technology-focused markets across Asia that have recently experienced sharp declines. The rebound suggests that some investors are beginning to rotate capital into markets that have fallen behind during the AI-driven rally.
The recovery, however, has taken place despite many of the original concerns that triggered the selloff remaining unresolved. Investors continue to monitor Indonesia’s fiscal policies, currency stability and the outcome of MSCI’s assessment.
Indonesia is expected to maintain its emerging-market classification, with many analysts predicting that MSCI will confirm the country’s status after completing its review of reforms introduced by regulators earlier this year. Additional support came after Indonesia’s sovereign credit rating was reaffirmed with a stable outlook, helping ease some market concerns.
Investor interest in Indonesian equities has also increased during meetings between global fund managers and financial institutions in Asia. Several investors have suggested that the country’s stock market may have already reached its lowest point.
Still, some analysts remain cautious. They argue that a slowdown in the AI investment boom alone may not be enough to create a lasting recovery for Indonesian assets. Other major emerging markets, including India and China, are also attracting renewed investor attention as global portfolios seek alternatives.
Indonesia, Southeast Asia’s largest economy with a gross domestic product of around $1.4 trillion, continues to face challenges. Concerns over government spending policies and fiscal discipline have weakened investor confidence, contributing to a decline of nearly 8% in the rupiah this year and pushing the currency toward record lows.
Higher oil prices linked to global supply concerns have added further pressure, as Indonesia remains a net importer of crude oil.
“Indonesia has become a market that many global investors have downgraded structurally,” said Arthur Budaghyan, chief emerging markets and China strategist at BCA Research. He added that investors now require stronger evidence of improvement before significantly increasing allocations.
Despite the decline in foreign investment, the exit from Indonesian markets has not been a complete withdrawal. Data from Copley Fund Research shows that more than half of actively managed funds tracked by the firm remain overweight on Indonesian stocks, although overall exposure has fallen to its lowest level in 15 years.
The research firm said Indonesia’s long-term investment case remains intact, noting that the market is no longer crowded and that investors may face greater risks from missing a potential recovery than from waiting for further confirmation.
As global investors reassess their exposure to expensive AI-driven markets, Indonesia’s undervalued stocks could become a growing focus for those searching for opportunities outside the biggest winners of the recent rally.
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