Rupiah Rally and Asian FX Resilience: Time to Bet on Indonesian Equities and Malaysian Bonds

The U.S. Dollar Index (DXY) has faced headwinds in 2025, pressured by inflation concerns and geopolitical risks, while Asian currencies like the Indonesian rupiah (IDR) and Malaysian ringgit (MYR) have shown surprising resilience. This dynamic presents a compelling opportunity to position in Indonesian equities—cheap by historical standards—and Malaysian fixed income, where stable yields and an easing cycle are on the horizon. Here’s why investors should act now.

The Rupiah’s Turnaround: Rate Cuts and Value

Indonesia’s central bank, Bank Indonesia, delivered a 25-basis-point rate cut on May 21, reducing its benchmark rate to 5.50%, ending a three-month pause. This move reflects cooling inflation (now within target) and a rupiah rebound of over 2% against the dollar since late April. Analysts project further easing: HSBC anticipates a “deep rate-cutting cycle,” while OCBC sees the rate falling to 5.25% by year-end.

This policy shift is a tailwind for Indonesian equities. The Jakarta Composite Index trades at a P/E ratio of 11.92, 2.74 standard deviations below its 10-year average, signaling extreme undervaluation. Sectors like consumer staples, telecoms, and materials are poised to benefit from lower borrowing costs and domestic demand growth.

Why Now?
- Trade Dynamics: Indonesia’s trade surplus remains robust, buffering against external shocks.
- Fiscal Catalysts: While the government’s free-meal program raised short-term fiscal concerns, Bank Indonesia’s stabilization efforts have calmed markets.

Malaysia: Fixed Income Stability Meets Easing Ahead

Malaysia’s central bank (Bank Negara) has maintained its Overnight Policy Rate (OPR) at 3.00%, but markets are pricing in two cuts within 12 months. This sets the stage for Malaysian government bonds (MGS), which offer a 10-year yield of 3.66%—attractive compared to global peers.

Key advantages:
1. Resilient Current Account: Malaysia’s current account surplus hit a three-quarter high in Q4 2024, supporting the ringgit.
2. Creditworthiness: Despite incomplete data, Malaysia’s sovereign debt remains investment-grade, with minimal exposure to U.S. tariff risks.

Investors should focus on long-dated bonds (e.g., 10-year MGS) and credit segments with strong fundamentals. While yield curves remain positive, the narrowing spread between Malaysia and U.S. bonds makes MGS particularly compelling for income seekers.

Risks to Watch

• Trade Tensions: U.S. tariffs could still disrupt regional trade flows, though diversification efforts are underway.
• Fiscal Slack: Indonesia’s spending programs must avoid overextending budgets, which could reignite rupiah volatility.
• Fed Policy: If the U.S. delays rate cuts, the DXY could rebound, pressuring Asian currencies.

Conclusion: Act on Asia’s Undervalued Assets

The combination of a weakening dollar, resilient Asian trade balances, and accommodative central banks creates a rare alignment for growth and income. Indonesian equities offer deep value in an undervalued market, while Malaysian bonds provide steady yields with an easing cycle ahead.

Investors should:
- Buy Indonesian equities through ETFs like EIDO, focusing on domestically oriented sectors.
- Allocate to Malaysian fixed income via MGS or ETFs tracking the Malaysia Government Bond Index.

The window to capitalize on this macro backdrop is narrowing—act before the market fully prices in these opportunities.

This analysis is for informational purposes only and should not be construed as investment advice.