Middle East tensions have begun to ease, as reflected by oil prices pulling back after previously approaching $120 per barrel. One of the key drivers was a statement from Donald Trump in an interview with CBS indicating that the conflict with Iran may soon come to an end and that further military escalation may no longer be necessary. Previously, the surge in oil prices was largely triggered by the closure of the Strait of Hormuz, which raised concerns over potential disruptions to global energy supply. In response, the G7 signaled its readiness to release strategic oil reserves to help stabilize global supply. In its statement, the group emphasized that it will continue to closely monitor developments in the energy market and coordinate with member countries and international partners as needed.

On the domestic front, the Jakarta Composite Index (JCI) has undergone a notable correction in recent months, pressured by a series of negative sentiments. These include volatility surrounding the MSCI rebalancing, concerns over potential sovereign outlook downgrades, rising oil prices, the potential implementation of IDX transparency policies on concentrated stocks, and market weakness ahead of the extended Eid holiday.

Given the current environment, a relatively prudent strategy for investors is to raise cash ahead of the Eid holiday period. Historically, over the past five years, the JCI has recorded four declines on the first trading day after the Eid holiday, with the largest drops occurring in 2022 (-4.4%) and 2025 (-7.8%). These declines were largely driven by external factors, including the Fed’s 50 bps rate hike in 2022 and Trump’s global tariff policy in 2025. The current environment shares similarities with those periods, which has contributed to a more risk-off stance among investors.

This risk-off behavior is also influenced by the nature of the Eid holiday in Indonesia. While the domestic market is closed for an extended period, global markets remain open. As a result, any negative developments that occur during the holiday could be fully reflected in the market at the first trading session after Eid.  Therefore, maintaining a higher cash position while monitoring opportunities in fundamentally strong sectors, particularly banking, appears to be a more cautious approach for now.

Indonesia’s three largest banks are expected to be among the key beneficiaries of stronger government fiscal spending, with GDP growth projected to exceed 6% this year. Despite the supportive macro outlook, share prices of these banks have declined significantly, falling approximately 30%–40% from their peak levels, which has also compressed implied P/B valuations by around 35%–45%. The magnitude of this correction appears disproportionate to the underlying fundamentals, as core operating performance remains relatively solid. Should market sentiment improve, BBCA, BBRI, and BMRI could potentially deliver total returns of around 35%–45% over the next sixteen months.