XA Quarterly Update | 3Q26 : Floodgates Opening – Prices Relaying An Honest Verdict On Policy Risk
by NHKSI Research Team
19 July 2026
🟨 Global — De-escalation Eases The Squeeze, But Repricing Runs Its Own Course
🔷 Geopolitics Cooling, Oil Flushing Down. A US–Iran–Israel ceasefire track in Doha has eased passage through the Strait of Hormuz, sending ICE Brent down –38.9% to USD 72 from its USD 118 peak. US May CPI printed a hot 4.2% YoY, but the detail is calmer — energy (+23.5% YoY) did nearly all the damage while core rose just +0.2% MoM and payrolls beat at +172k. This reads as a relative-price shock clearing on its own, not broad-based repricing.
🔷 A New Hand At The Fed. Kevin Warsh held rates at 3.75% in his first FOMC, resisting pressure for quick cuts with inflation still above target. The landmark Trump v. Cook 5–4 ruling preserved Fed independence — restraint over activism, for now. Meanwhile Polymarket bettors favor a Democratic House takeover, a split Congress that would tighten the purse strings for the administration’s final two years.
🔷 China Splitting Its Bets, AI Soaking Up Liquidity. Beijing is deploying USD 295 bn for nationwide data centers by 2028, targeting 80% domestic AI-chip sourcing while routing exports through partner nations to sidestep US tariffs — and openly airing frustration with Indonesia’s investment climate. The S&P 500 ex-tech sits underwater YTD; after SpaceX’s USD 2.1 tn debut, OpenAI and Anthropic listings are set to keep draining liquidity.
🟨 Domestic Fiscal — Borrowed Growth, Reluctant Rebalancing
🔷 Front-Loaded Spending Props Up 1Q26. GDP grew 5.61% in 1Q26, pulled by a +21.8% YoY surge in government spending — a front-loading strategy that risks overspending and budget inflexibility by 3Q–4Q. Deficits are deferred taxes: front-loaded spending must be paid by taxes, borrowing, or money creation, with no fourth option. Inflation reached 3.34% YoY in Jun-2026, brushing the upper limit of BI’s 1.5%–3.5% range.
🔷 Ramping Down The Signature Programs. MBG trimmed from IDR 174 tn to IDR 161 tn; Kopdes October targets halved to 40,000 from 80,000 units amid student protests over fiscal efficiency; bansos shifting to monetary transfers (~IDR 5.4 mn), which may dampen job participation.
🟨 Monetary & Credit — Hawkish At Last, But Allocation By Decree
🔷 BI Showing Its Talons, Belatedly. Reserves sank to a two-year low of USD 144.9 bn (5.6 months of imports) as the Rupiah touched IDR 18,180/USD. A USD 10k/month FX cap only reroutes exchange into channels the state cannot see — thinning onshore liquidity and deterring the very inflows it hopes to retain. The yield curve, inverse or humped, signals slowdown either way.
🔷 Credit By Decree. Investment credit grew 21.95% YoY on BI’s KLM incentives (IDR 418.1 tn disbursed) steered into designated sectors — allocation by policy rather than price signals — while retail deposits contract and funding concentrates in large accounts. Credit that ignores expected return funds projects the market would not fund at par; watch for NPLs rising precisely where lending grew fastest.
🟨 Property Rights & External Verdicts — The Risk Premium Repriced
🔷 Insecure Title Taxes Every Asset. Martabe’s transfer to Danantara, 28 permits seized after the Aceh floods, DSI export gatekeeping, Patriot Bond governance doubts, and jailed VC figures (Nadiem Makarim, Nicko Widjaja) each add to the risk premium on Indonesian assets. Once property can be reassigned by decree, the mere possibility is priced into every title.
🔷 Outside Judgments Landing. US tariffs land at 18–19% by 24-Jul under a Section 301 finding; MSCI keeps Indonesia at Emerging Market but under watch to Nov-2026; IDX counters with FCA reform and tighter monitoring criteria — welcome steps toward genuine price discovery.
🟨 Markets — Capital Voting With Its Feet, But Re-Entry Priced
🔷 Worst In Class. The JCI closed 1H26 at 5,643.19, down 34.74% YTD — the worst print in ASEAN against Thailand (+26.3%), Singapore (+11.3%), and Vietnam (+4.0%). Energy (–42.2%) and property (–40.2%) bore the brunt. Foreign investors net sold IDR 74.4 tn YTD, rotating into SBN as daily turnover thinned from IDR 22.2 tn to IDR 11.3 tn.
🔷 Banking As The Compensated Wait. Financials fell just –17.5% YTD, roughly half the market’s drawdown, with big-bank betas below one (BBRI at 0.69). BBRI trades near IDR 2,800 at ~7x trailing earnings; BMRI (~11.6%) and BBRI (~11.3%) pay roughly triple the 3.6% industry-average dividend yield. Shareholders are paid to wait for sentiment to clear. Rating: Neutral — BBRI TP 4,300; BBNI TP 5,050; BBCA TP 10,000; BMRI TP 5,600.
🔷 The Cure, Not The Disease. None of this is destiny. At –34.7% YTD, 7x bank earnings, and 11% dividend yields, the price of re-entry is already on the table — remove the distortions and capital returns as swiftly as it left. The correction is not the disease; it is the market administering the cure.
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