Financial markets across Southeast Asia came under pressure on Monday as political unrest in Indonesia triggered sharp sell-offs and raised concerns over regional stability. The Jakarta Composite Index fell more than 3% in early trading, while the rupiah weakened before central bank intervention provided some relief.
Indonesia at the centre of volatility
Unrest erupted after revelations of excessive perks for lawmakers, sparking deadly protests in Jakarta and other cities. President Prabowo Subianto has since ordered cuts to allowances and imposed restrictions on parliamentary overseas trips. Despite these measures, investor confidence faltered. Equity markets recorded their steepest one-day decline in months, and currency volatility forced Bank Indonesia to step in with stabilising measures.
Regional contagion
The turbulence was not confined to Indonesia. Thailand’s markets also wavered amid its own political leadership crisis, compounding concerns over governance risks in Southeast Asia. Investors shifted capital towards safer assets and alternative destinations such as Vietnam, while sectors linked to Chinese technology and renewables benefited from risk reallocation.
Investor sentiment under strain
Analysts noted that Indonesia’s equity risk premium is rising, with global funds turning cautious due to policy unpredictability and tax-related concerns. Nevertheless, the country continues to attract foreign inflows, with more than $600 million invested in August. This highlights investor willingness to take long-term exposure despite short-term volatility.
Policy response
Authorities have moved quickly to reassure markets. Bank Indonesia pledged continued support for the rupiah through foreign exchange intervention, while government officials stressed that economic fundamentals remain solid. Fiscal measures and social programmes are also being introduced to ease tensions and restore calm.
Outlook
The events underline both the opportunities and fragilities of Southeast Asia’s fast-growing markets. While Indonesia remains a key regional investment destination, political shocks are testing confidence and highlighting the need for stronger governance. Regional stability will be crucial as global investors assess exposure to frontier and emerging markets in the months ahead.
REFH – Newshub, 1 September 2025
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