Indonesia’s stock market could see as much as US$9 billion of passive outflows after MSCI Inc flagged “fundamental investability issues” linked to opaque shareholding and warned it may cut the weighing of Indonesian equities in its emerging-market indexes and downgrade the Southeast Asian nation to a frontier market.
The benchmark Jakarta Composite Index dived more than 10% in just two days since the US index provider issued the warning in a statement on January 28, wiping out the 3% gain made before that in 2026.
If MSCI makes good on the downgrade threat, there could be $8 billion-$9 billion of outflows from passive investments like index-linked funds, according to Singapore-based investment banking and securities firm CGS International.
“Investor feedback continues to reflect a prevailing bias that an MSCI weight adjustment is likely, although the risk of a downgrade to frontier market status remains remote,” the firm says in a research report on January 29.
US investment bank Goldman Sachs pegged potential outflows at $7.8 billion and cut Indonesian equities to underweight from market weight.
MSCI released the statement after consultations on assessments of the free float of Indonesian shares, saying that many investors expressed “significant concerns” about relying on central depository PT Kustodian Sentral Efek Indonesia’s shareholder categorisation data.
The index provider says that despite minor enhancements in the data feed of Indonesia Exchange, investors highlighted that “fundamental investability issues persist due to ongoing opacity in shareholding structure”.
It gave Indonesia four months to address the issue.
“If insufficient progress is made towards achieving necessary transparency enhancements by May 2026, MSCI will reassess Indonesia’s market accessibility status,” the index provider says, adding that this may include reducing the weighting of all Indonesian securities in the MSCI Emerging Market Indexes, and potential downgrade to frontier market.
Goldman Sachs expects Indonesian stocks to remain under pressure and doesn’t see the Jakarta Composite Index’s decline thus far as an entry point to the market.
