The Case for Outperforming Indonesian Equities in 2026

Indonesia's equity market is poised for outperformance in 2026, driven by a confluence of structural growth drivers and a resilient macroeconomic framework. While global uncertainties persist, the country's strategic investments in infrastructure, electric vehicle (EV) supply chains, and fiscally prudent policies position it as a compelling destination for investors seeking long-term value.

Structural Growth Drivers: Building the Foundations of Future Growth

Infrastructure Expansion: A Catalyst for Economic Momentum
Indonesia's infrastructure development remains a cornerstone of its growth strategy. By 2026, the government aims to close a Rp753 trillion funding gap through public-private partnerships (PPPs) and innovative financing mechanisms, with 35.63% of the Rp1,905.3 trillion total budget sourced from the State Budget (APBN) and 24.87% from Regional Budgets (APBD) PwC's infrastructure financing report. Key projects, such as the Palapa Ring digital infrastructure and the SATRIA-1 satellite, underscore the nation's commitment to modernizing connectivity. A landmark partnership between the Danantara sovereign wealth fund and Qatar is set to inject Rp64.2 trillion into large-scale projects, including renewable energy and transportation Indonesia Construction Industry Report 2025. These initiatives not only stimulate construction industry growth (projected at 5.9% CAGR from 2026–2029) but also create a multiplier effect across sectors like logistics and manufacturing.

Electric Vehicle Supply Chain: A Strategic Pivot
Indonesia's EV ambitions are accelerating, with government policies designed to attract foreign investment while fostering local content. A 0% import duty on EVs for manufacturers establishing domestic factories by 2026 has drawn players like BYD, which benefits from generous subsidies IISD report. However, this policy has created tension with domestic firms like Hyundai, which has invested heavily in battery manufacturing and charging infrastructure. To address this, the government plans to raise local content requirements to 60% by 2026 via Presidential Regulation No. 79/2023, signaling a shift toward self-sufficiency IISD report. While challenges remain-such as balancing short-term market access with long-term industrialization-the EV sector's potential to drive employment and technological adoption is undeniable.

Macroeconomic Resilience: Fiscal Prudence and Debt Management

Fiscal Policy: Balancing Ambition and Prudence
Indonesia's 2026 budget prioritizes fiscal sustainability while advancing national priorities. Tax revenue is projected to grow by 13.5%, accounting for 75% of total fiscal revenue, as the government broadens its tax base and improves compliance BRIGHTS macro strategy. Central government expenditures are set to rise by 17.8%, with a sharp reduction in regional transfers (down 25.5%) to consolidate resources for high-impact programs like the Free Meal Program (MBG), which nearly doubles in funding to IDR 334 trillion BRIGHTS macro strategy. The fiscal deficit is expected to moderate to 2.48% of GDP, down from 2.78% in 2025, reflecting disciplined debt management BRIGHTS macro strategy. This approach not only stabilizes public finances but also creates a favorable environment for equity markets by reducing inflationary pressures and bond yield volatility.

External Debt Management: Mitigating Risks, Enhancing Stability
Indonesia's external debt profile has improved, with total debt declining to USD432.5 billion by July 2025, supported by a strategic shift toward multilateral creditors like the World Bank and ADB BRI update. Government borrowing has become more cautious, with private sector external debt falling to USD195.6 billion as corporations reduce reliance on foreign financing BRI update. While China's growing role as a creditor introduces geopolitical risks, Indonesia's focus on concessional loans and FX risk monitoring ensures a sustainable debt trajectory. For equities, this stability reduces macroeconomic volatility, making the market more attractive to foreign investors.

Equity Market Implications: A Convergence of Forces

The alignment of structural growth and macroeconomic resilience creates a fertile ground for equity outperformance. Sectors directly tied to infrastructure (e.g., construction materials, engineering firms) and EV supply chains (e.g., battery manufacturers, charging infrastructure providers) are likely to lead. Additionally, fiscal prudence and controlled debt issuance may drive down bond yields, freeing up capital for equity investments. While short-term headwinds-such as FDI declines and trade tensions-exist, Indonesia's long-term trajectory remains intact.

For investors, the key is to focus on companies positioned to benefit from these structural shifts. Those with exposure to government-led infrastructure projects or partnerships in the EV value chain are particularly well-placed. As Indonesia navigates its path to 2026, the combination of policy foresight and market dynamism offers a compelling case for equity outperformance.