Investors are grappling with renewed volatility in Southeast Asia as political turbulence spills into financial markets. Indonesia’s stocks and bonds endured sharp declines, while Thailand continues to face leadership uncertainty, leaving global funds hesitant to commit further capital. 

The implications extend well beyond regional borders, as both nations play crucial roles in emerging market investment flows. A financial analyst from FTMX Global explores how protests, shifting investor sentiment, and fragile currencies are reshaping the economic outlook across the region.

Indonesia’s Market Under Strain

The downturn in Indonesia began with mounting public frustration over rising living costs, inequality, and controversial parliamentary perks. Over the weekend, demonstrations escalated into unrest, forcing the country’s president to cancel a diplomatic trip to China. 

Protesters even targeted the homes of the finance minister and several lawmakers, amplifying investor fears over stability.

On Monday, Indonesia’s equity benchmark dropped as much as 3.6%, marking its steepest decline in nearly five months. Financial institutions bore the brunt, with Bank Rakyat, Bank Central Asia, and Bank Mandiri Persero all tumbling more than 4% intraday. 

This sector is particularly exposed to capital outflows because of its heavy weighting in the index and its dependence on liquidity.

The bond market reflected similar stress. Yields on the benchmark 10-year government bond rose by 7 basis points to 6.4%, their highest level in nearly three weeks. 

The local currency, the rupiah, managed to hold steady as the central bank intervened to prevent excessive depreciation. Still, with the rupiah already down more than 2% against the U.S. dollar this year, investor confidence remains fragile.

Outflows and Shifting Sentiment

What makes this reversal striking is that just weeks earlier, Indonesia had been attracting international attention. In August, foreign investors pumped $676 million into Indonesian equities, driving the benchmark index to a record high and an 8% gain year-to-date. 

Those inflows are now at risk of unwinding as investors de-risk portfolios in light of instability.

Analysts argue that Indonesia’s equity risk premium is rising. Political unrest introduces uncertainty around future policies, the durability of reforms, and the government’s ability to manage fiscal commitments. 

For asset managers, this increases the threshold of expected returns needed to justify holding Indonesian securities.

Roots of the Protests

The unrest stems from widespread anger over lawmakers’ housing allowances, reportedly nearly 10 times the monthly minimum wage in Jakarta. Combined with tax hikes, mass layoffs, and persistent inflation, the allowances sparked public outrage. 

For many lower-income Indonesians, these measures symbolized the widening gap between policymakers and citizens.

In response, the president announced that parliament would remove the controversial perks, but the move has not quelled discontent. Demonstrations highlight deeper concerns about economic fairness, job security, and transparency.

Regional Comparisons: Thailand in Flux

Indonesia is not alone in facing political and market pressures. In Thailand, the disqualification of the prime minister has created a power vacuum, with rival politicians vying to form the next government. 

This political infighting has been a recurring theme in Thailand for decades, contributing to slower growth compared to other regional economies.

While some analysts are cautious, others view Thailand as relatively insulated compared to Indonesia. Cheap valuations and the possibility of a leadership transition that stimulates economic activity provide cautious optimism. 

Still, the Thai stock market has been battered, with its benchmark index down about 12% year-to-date. Foreign investors have already withdrawn $670 million from Thai equities in 2025, though the baht has risen more than 5% against the dollar, partly supported by global dollar weakness.

Policy Responses and Long-Term Outlook

Indonesia’s leadership has tried to pursue ambitious economic programs, including a $1 trillion sovereign wealth fund that manages nearly 900 state firms. The initiative aims to attract investment and foster long-term growth. 

Alongside this, the administration has rolled out populist measures such as free meal programs, designed to ease pressure on low-income households.

Despite these efforts, critics argue that the initiatives have not yet improved conditions for ordinary Indonesians. Inflation, inequality, and political mistrust continue to weigh heavily on the national mood. Without meaningful reforms that emphasize transparency and equity, investor skepticism may persist.

For Thailand, stability hinges on whether a new government can build consensus and implement pro-growth policies. Historical divisions suggest this will not be easy. Yet, some strategists believe that the baht’s resilience and the possibility of policy continuity offer reasons for cautious hope.

Broader Implications for Investors

For global investors, the turbulence in Indonesia and Thailand underscores the delicate balance between opportunity and risk in emerging markets. Both nations have strong long-term growth potential due to demographics, geography, and resources. Yet short-term political events can dramatically alter capital flows and market performance.

Foreign funds may choose to hedge positions, rotate into less politically exposed markets, or wait for greater clarity. At the same time, policymakers in both countries face the challenge of reassuring investors while addressing public demands for fairness and accountability.

Conclusion

The recent selloff in Indonesian assets and the ongoing uncertainty in Thailand highlight how quickly political unrest can reshape financial markets. With stocks falling, bond yields rising, and currencies under pressure, Southeast Asia’s largest economies are navigating turbulent waters. 

For investors, the situation offers both cautionary lessons and potential long-term opportunities. Until stability and transparency are restored, regional assets will remain vulnerable to sharp swings in global sentiment.