MSCI delays Indonesia status decision as downgrade risk remains
MSCI will wait until November to judge Indonesia’s equity-market reforms, keeping open the risk of a move from emerging to frontier status.
By Maya Lindqvist · Senior Technology Correspondent
3 min read
MSCI Inc. has put off a decision on Indonesia’s equity-market status until its November 2026 index review, saying it needs more evidence that recent market reforms are taking hold. The delay keeps investors focused on the risk that Indonesia could lose its emerging-market classification, a change that may affect foreign fund flows.
In a Tuesday statement, MSCI said Indonesian authorities had made progress on disclosure rules, more detailed investor classifications and a plan to lift the minimum free-float requirement to 15%. The index provider said global investors would judge those steps by their consistent use and their effect in the market.
MSCI said it would consider several possible treatments for Indonesia if it does not see enough progress by November, including a consultation on moving the country from emerging-market status to frontier-market status. MSCI had warned in January that such a downgrade was possible because of concerns about investability and the limited amount of stock available for public trading, Bloomberg reported.
The warning has weighed on Indonesian equities for months. Bloomberg reported that the Jakarta Composite Index had become the world’s worst-performing major benchmark this year amid MSCI uncertainty, questions over policy direction and pressure from the Iran war. The index rose as much as 1.2% on Wednesday morning before trimming its gain to 0.6% as of 9:30 a.m. in Jakarta, according to Bloomberg.
MSCI’s latest update had already been pushed back from May, Bloomberg reported. Last week, the index compiler cut Indonesia’s assessment on information flow to negative in its annual accessibility review, citing limited transparency in shareholding structures, trading behavior that hurt price formation and insufficient English-language corporate disclosure.
Mohit Mirpuri, a partner at SGMC Capital in Singapore, told Bloomberg that Indonesia still has emerging-market status but now carries “a warning label.” He said regulators must show credible progress in the months ahead.
Indonesian regulators have announced several changes since the January warning. Bloomberg reported that the Indonesia Stock Exchange identified companies with concentrated ownership, an issue linked to MSCI’s decision in May to remove some stocks from its indexes. The recent appointment of capital markets veteran Jeffrey Hendrik as chief executive officer of the exchange has also helped calm some investors, Bloomberg reported.
Hasan Fawzi, head of capital market supervision at Indonesia’s Financial Services Authority, said MSCI’s decision gives regulators momentum to continue, strengthen and speed up reforms that began earlier this year.
The stakes are high for Indonesia’s markets. Bloomberg reported that keeping emerging-market status could help slow foreign outflows and reduce pressure on the rupiah, which has weakened more than 6% against the dollar this year. Foreign investors have sold $4 billion of Indonesian equities, while the benchmark index is down about 30%, according to Bloomberg.
Investor concerns also extend beyond MSCI. Bloomberg reported that President Prabowo Subianto’s populist program and moves toward tighter state control have unsettled some funds, including worries over commodity-export intervention and turmoil around Indonesia’s nutrition agency. Franklin Templeton fund manager Yi Ping Liao told Bloomberg that Indonesia’s macro backdrop remains challenged and that several issues still need to be resolved.
FTSE Russell is also watching. The index provider said last month it would delay its own re-ranking of Indonesia, including free-float changes and stock additions, until at least its September review so it could keep monitoring developments.
This story draws on original reporting from Fortune.