The increasingly evident weakening of the U.S. dollar is beginning to reshape global market leadership. With U.S. equity valuations already elevated, upside potential appears increasingly limited while downside risks are rising amid economic deceleration and mounting fiscal pressures. In this environment, global investors are rotating toward assets offering more reasonable valuations and greater re-rating potential. Emerging Markets are entering a phase of “relative bull,” supported by a combination of USD debasement, expansionary U.S. fiscal policy, global monetary easing trends, and historically discounted EM valuations.

This rotation is particularly relevant for Indonesia, which continues to offer relatively solid macro stability despite global volatility. While the rupiah has faced periods of pressure, inflation remains contained and financial system stability intact. Under a scenario of a weaker USD and broader global easing, external pressures on the rupiah could gradually ease, opening room for renewed foreign inflows into domestic assets—especially equities that are sensitive to global cycles and valuation dynamics.

At the sector level, Indonesian banks stand out as key beneficiaries of an EM rotation. Banking system liquidity is now significantly more comfortable and no longer a binding constraint on credit expansion. This is reflected in a declining loan-to-deposit ratio, deposit growth continuing to outpace credit growth, and a steady decline in funding costs as deposit rates normalize and competition with government bonds eases. The decline in SRBI yields and Bank Indonesia’s more measured approach to liquidity absorption further reinforce this supportive backdrop.

That said, credit growth remains moderate, reflecting subdued confidence rather than balance-sheet limitations. Households remain cautious—particularly in consumer lending—while corporates prefer to preserve cash buffers and tap bond markets rather than accelerate expansion. With solid fundamentals, resilient asset quality, and lower funding costs, the banking sector is well positioned for a gradual recovery into 2026, as confidence improves and capital flows increasingly favor Emerging Markets.