Geopolitical Tensions Rise, Markets Turn Risk-Off
Panic or buying opportunity?
Dear Clients,
You may have seen the headlines across your social media feeds or heard discussions at the dinner table about rising tensions between the U.S. and Iran, as well as recent developments in Mexico. Naturally, this raises questions: Will this affect my investments? Is it time to withdraw? Should I be doing something differently?
In this article, we aim to provide clarity by outlining what’s happening, how we are assessing the situation, and how we believe investors should navigate the current environment with discipline and perspective.
📊 Weekly Market Commentary
The Jakarta Composite Index (JCI) closed the week lower by -3.66% WoW, with the sharpest declines occurring on Tuesday and Thursday, when the index fell by more than 1% on each day. Rising geopolitical tensions weighed heavily on market sentiment, prompting a broad shift toward a “risk-off” stance as investors rotated into safe-haven assets.
Uncertainty surrounding potential U.S. tariff increases added to market pressure, alongside escalating tensions in the U.S.– Iran conflict. Meanwhile, political instability in Mexico also contributed to global risk aversion following heightened national security concerns after the death of cartel leader “El Mencho.”
Top performing sectors: Financials, Transportation & Logistics
FX: Rupiah strengthened slightly, with USD/IDR closing out at 16,774 on Friday
Market flows: Foreign investors were net buyers of ~IDR 1.69T. Top foreign buys were concentrated towards blue-chip stocks: BBRI, BMRI, and TLKM.
Market Snapshot
🗓 Global Headlines
The U.S./Israel/Iran war escalated over the weekend following reports that Iran’s supreme leader was killed, triggering widespread unrest across the country.
The attacks were carried out as a joint military operation involving Israel and the U.S., with President Donald Trump stating that the objective was to “eliminate imminent threats from the Iranian regime.”
Oil markets reacted swiftly; WTI crude prices surged over 5% in early Monday trading to above USD $70/barrel, driven by concerns over potential supply disruptions given Iran’s role as a major oil producer. Further escalation could lead to additional spikes in energy prices.
Amid heightened uncertainty, investors rotated into safe-haven assets. Gold rose nearly 2% in early Monday trading, hovering around USD $5,350/oz. U.S. equity index futures declined, while the Dollar Index (DXY) edged slightly higher.
🔍 What’s Ahead?
We expect volatility to remain elevated in the near term, with the domestic market potentially facing further correction amid lingering geopolitical uncertainty, unresolved MSCI-related issues in Indonesia, and a lack of near-term catalysts.
Key OPEC+ members announced a larger-than-expected oil production hike implemented in April, but analysts warn that the move is unlikely to calm markets, as prices will respond to developments in the Gulf and the status of shipping flows, not to a relatively small increase in output.
Rising oil prices also pose inflationary risks. As Indonesia is a net oil importer, higher energy costs could translate into increased import prices and upward pressure on inflation.
In this environment, bond yields may rise while bond prices come under pressure. Commodity prices, particularly gold, are likely to continue upside.
🧠 What Should You Do?
At Simpan, we have anticipated heightened geopolitical risks since early this year. As a result, our portfolios have been tilted toward commodity-linked exposures, particularly in coal and gold.
Following recent price appreciation, we have selectively trimmed some commodity positions to lock in profits, while maintaining an overall overweight allocation to the sector.
We are also holding higher cash levels and adopting a “wait-and-see” approach as conditions continue to evolve. At this stage, we are not deploying additional capital or adding new positions.
We recommend investors maintain higher cash balances as well. To generate yield on idle cash, consider investing in our Cash Fund or our Smart Cash Products which contains combined exposure to our Cash and Bond Fund.
We wish you a great week ahead!