JAKARTA, June 19 — American finance company MSCI Inc. has raised new concerns about Indonesia's investability, citing limited visibility in shareholdings and coordinated trading behaviour, though investors expect the country to retain its emerging markets status in a high-stakes review next week.
Indonesia's capital markets have plunged since MSCI flagged transparency issues in January and warned of a potential downgrade to frontier status, a move deemed unlikely but one that could trigger outflows of up to US$13 billion (RM53.79 billion).
Indonesian stocks swung between small gains and losses in early trading today, as investors assessed the implications of MSCI's market accessibility review, released overnight.
Jakarta's stock benchmark is down about 29 per cent so far in 2026, making it the world's worst-performing major equity market, with foreign investors having sold about US$3.65 billion (RM15.10 billion) worth of Indonesian shares.
MSCI lowered Indonesia's information flow criterion to negative yesterday, reflecting opacity in ownership data and market activity.
It added that this undermines proper price formation and constrains global investors' ability to assess companies' true free float.
However, Singapore-based SGMC Capital fund manager Mohit Mirpuri said the review was more balanced than the headline concern suggested, noting only one accessibility measure deteriorated, while Indonesia continued to score well against peers, including South Korea, China, and India, on several key criteria.
"The key point is that this was not a broad deterioration in Indonesia’s accessibility framework. Our base case remains that Indonesia retains its emerging market status," he said.
MSCI's January warning spurred a slate of reform measures by authorities, including doubling the minimum free float for listed companies to 15 per cent, as the top executives of the exchange and the regulatory body resigned in a single afternoon that month.
A downgrade by MSCI, one of the biggest providers of market indexes tracked by billions of dollars in passive investments, would force tracking funds to sell and pressure active managers benchmarked to MSCI indexes to reduce exposure.
Singapore-based Allspring Global Investments portfolio manager Gary Tan said the MSCI review reinforces that Indonesia's key challenge remains structural.
He also expects Indonesia to keep its emerging markets status, "with current pressures acting more as a catalyst for further market reforms than a near-term downgrade."
In April, MSCI extended its review of Indonesian markets and, in May, removed six companies, most of which were tied to tycoons, from its indexes, leading to another sharp drop in stocks.
Its scrutiny has exposed deeper anxieties about Indonesia under President Prabowo Subianto, as his populist measures and concerns about fiscal health have pushed the rupiah to record lows, spurring the central bank to hike interest rates in recent weeks to support the currency.
MSCI noted that Indonesia has no efficient offshore currency market and that there are constraints on the onshore market.
Rating agencies Moody's and Fitch cut their debt rating outlooks for Indonesia to negative earlier this year, citing reduced policymaking credibility as the US$1.4 trillion (RM5.79 trillion) economy, once a market darling, grapples with sinking investor confidence.
Maybank in Indonesia's research head Jeffrosenberg Chen Lim said MSCI's comments indicate that the focus has shifted from technical market access issues to trust and governance concerns, which are often more difficult and time-consuming to address.
"Indonesia may avoid a downgrade this year but could remain under scrutiny until regulators demonstrate meaningful improvements in transparency, disclosure standards, and market surveillance," he said.
