MSCI raised new concerns about Indonesia's market accessibility, pointing to limited visibility in share ownership and coordinated trading behavior ahead of a key review of the country's emerging market status (19/06).

Despite the concerns, investors expect Indonesia to remain classified as an emerging market.

MSCI lowered Indonesia's information flow criterion to negative, saying a lack of transparency in ownership data and market activity makes it harder for investors to assess companies' true free float and weakens price formation.

Indonesia's benchmark stock index has fallen about 29% in 2026, making it the world's worst-performing major equity market. Foreign investors have sold around $3.65 billion worth of Indonesian shares.

MSCI Flags New Transparency Issues in Indonesia

MSCI first warned about transparency issues in January and said Indonesia could face a downgrade to frontier market status.

Although such a move is considered unlikely, it could lead to capital outflows of as much as $13 billion.

The index provider also said Indonesia does not have an efficient offshore currency market and that restrictions remain in the domestic foreign exchange market.

On Friday, Indonesian stocks moved between gains and losses as investors evaluated the latest market accessibility review released overnight.

Investors Expect Indonesia to Keep Emerging Market Status

Mohit Mirpuri, a fund manager at SGMC Capital in Singapore, said the review was more balanced than headlines suggested because only one accessibility measure worsened.

"The key point is that this was not a broad deterioration in Indonesia’s accessibility framework," he said. "Our base case remains that Indonesia retains its emerging market status."

Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, also said he expects Indonesia to maintain its emerging market status.

He said the latest review showed that Indonesia's main challenges remain structural and that the current pressure could encourage further reforms rather than result in a near-term downgrade.

Authorities Continue Market Reform Efforts

After MSCI issued its warning in January, Indonesian authorities introduced several measures, including raising the minimum free float requirement for listed companies to 15%.

During the same month, the heads of the Indonesia Stock Exchange and the financial regulator resigned on the same day.

Indonesia's financial regulator said on Friday that the latest review confirmed the direction of the country's market reforms.

Hasan Fawzi, the regulator's chief capital market supervisor, said improving market transparency, integrity, and information quality is an ongoing process.

"This feedback is part of a constructive evaluation process," he said.

MSCI extended its review of Indonesian markets in April. In May, it removed six companies, most of them linked to tycoons, from its indexes, triggering another decline in stocks.

Investor Confidence Remains Under Pressure

MSCI's scrutiny has highlighted broader concerns about Indonesia under President Prabowo Subianto, as worries over populist measures and fiscal health have pushed the rupiah to record lows.

The central bank recently raised interest rates to support the currency.

Moody's and Fitch revised their outlooks on Indonesia's debt rating to negative earlier this year, citing reduced policy credibility as investor confidence weakened.

Jeffrosenberg Chen Lim, head of research at Maybank Indonesia, said the focus has shifted from technical market access issues to concerns about trust and governance.

"Indonesia may avoid a downgrade this year but could remain under scrutiny until regulators demonstrate meaningful improvements in transparency, disclosure standards, and market surveillance."

PHOTO: EPA/BUSINESS TIMES

This article was created with AI assistance.

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