3 days ago
12
TEMPO.CO, Jakarta - Listya Endang Artiani, a lecturer and researcher from Universitas Islam Indonesia (UII), highlighted that the decline of the Composite Stock Price Index (IHSG) since mid-March 2025 has consequences beyond financial losses.
According to her, the psychological impact and mass panic triggered by this downturn pose the greatest risk.
"In this situation, fear and irrationality take over rational analysis, leading investors to act impulsively," Listya stated in a written release received by Tempo on Monday, March 24, 2025.
On Tuesday, March 18, 2025, the Indonesia Stock Exchange (BEI) was forced to activate an emergency brake after the IHSG plunged by 5.02 percent to 5,146, prompting a 30-minute trading halt. Despite stock trading closing in positive territory between March 17-21, 2025, the IHSG still dropped 3.95 percent, landing at 6,258.179.
Listya argued that this sharp decline is not just a routine market fluctuation but a reflection of deeper economic confidence issues. In investment, she explained, numbers represent more than just figures—they mirror expectations and market psychology. She attributed the IHSG's fall to a growing lack of confidence in Indonesia’s economic fundamentals.
The UII economics lecturer further elaborated that behind the IHSG downturn lies a web of underlying issues. The Indonesian economy, she noted, has been showing warning signs that conflict with market expectations. These concerns range from slowing economic growth and inflationary pressures to widening fiscal deficits and government policies perceived as unfriendly to the market.
According to Listya, the panic was worsened by declining trust in state-owned enterprises (SOEs) and Danantara, which have long been seen as stabilizing forces in the capital market. She pointed out that when investors begin to doubt the financial health and corporate governance of these key institutions, massive sell-offs become inevitable.
"In the investment world, trust is the most valuable currency. Once that trust erodes, the market reacts swiftly," she emphasized.
Psychological Impact and the Market Panic Cycle
One of the most alarming consequences of the IHSG plunge, Listya said, is the psychological effect that fuels mass panic. Retail investors, seeing their portfolios rapidly shrink, often enter a panic mode, selling off assets in a frenzy without considering valuations or long-term potential.
This psychological turmoil is further aggravated when media outlets amplify the fear with alarming headlines such as "IHSG Crashes! Investors Lose Trillions!" or "Public Trust in Capital Markets Plummets!" In the investment world, sentiment drives market movements—once fear dominates, selling pressure intensifies.
"This creates a self-fulfilling prophecy where what initially was just a correction spirals into a deeper decline due to uncontrolled panic," the UII researcher explained.
Listya also noted that this psychological impact extends beyond investors to financial institutions and businesses. Investment managers face an uptick in mutual fund withdrawals, banks grow more cautious about lending to capital market-related sectors, and publicly traded companies come under pressure to reassure shareholders.
"If left unchecked, this turmoil could spill into the real economy, delaying business expansions, increasing layoffs, and dampening consumer spending," she warned.
Furthermore, Listya emphasized that the panic does not remain confined to the stock market but seeps into daily economic behavior. Consumers, influenced by distressing market news, start questioning economic stability, curbing their spending, and shifting assets to safer investments like gold or fixed deposits.
Should confidence in the economy continue to erode, she cautioned, Indonesia could face capital flight, with foreign investors withdrawing their funds—further pressuring the rupiah and worsening overall economic conditions. Without decisive intervention from the government and regulators to contain market panic, the situation could escalate far beyond a temporary trading halt.
"Restoring trust requires more than just technical regulations; it demands real, transparent, and credible economic measures," Listya concluded.
Adil Al Hasan contributed to the writing of this article.
Editor’s Choice:Prabowo on IHSG Drop: Stock Market May Fluctuate, but Food Security Comes First
Click here to get the latest news updates from Tempo on Google News
