Indonesian stock market has performed strongly this year, with the Jakarta Composite Index rising approximately 22% cumulatively, and is expected to achieve its best annual performance since 2014. However, the main driver behind this rally is unexpectedly not foreign capital.

The true incremental funds are coming from the local market—domestic retail investors are accelerating their entry. Against the backdrop of consecutive interest rate cuts by the central bank, local Indonesian investors have significantly increased their participation, especially favoring stocks with higher volatility and greater risk. Their buying momentum has been so strong that it has completely offset the impact of continuous outflows of foreign capital.

So why are foreign investors retreating? The logic is quite straightforward: economic growth is slowing down, government spending is increasing too rapidly, and the medium- to long-term fiscal sustainability is under pressure. According to conventional logic, these factors should drag down the stock market. But in reality, the index continues to surge.

This reflects an interesting shift—when a rising market is accompanied by foreign capital leaving, it is often not the fundamentals that have changed, but rather the ownership of pricing power. Today, in the Indonesian market, domestic funds are taking over this control.

Whether this rally can continue depends not on when foreign capital will return, but on how long domestic retail investors' risk appetite can sustain.