IDX said it would seek further clarification from the index provider on the considerations behind its announcement
[JAKARTA] Indonesia faces the prospect of losing its emerging-market status in MSCI’s global equity benchmarks, a rare setback that could further undermine investor confidence as the country grapples with concerns over market transparency and accessibility.
MSCI on Oct 16 early morning, launched a consultation on a potential reclassification of Indonesia from an emerging market to a standalone market.
A move to standalone status would remove Indonesian equities from MSCI’s emerging and frontier market indexes, potentially prompting investment funds tracking those benchmarks to reassess or unwind their exposure to the country.
The index provider cited persistent concerns over shareholding transparency, suspected coordinated trading and a lack of evidence that regulatory reforms have meaningfully improved the country’s equity market.
The global index provider said market participants had not observed sufficient progress in addressing concerns about market investability, despite reforms announced by Indonesian authorities.
MSCI said it expected to proceed with the reclassification unless feedback from the consultation provided clear evidence of material improvements in market governance and functioning.
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The proposal comes as Indonesia faces sustained foreign investor selling and concerns over the transparency of its stock market, including the availability of reliable information on share ownership and free float.
The Indonesia Stock Exchange (IDX) said it had taken concrete steps with the Financial Services Authority (OJK) to improve market transparency, integrity and quality.
In a statement on Oct 16, IDX president director Jeffrey Hendrik said the reforms had received positive responses from global investors and international index providers, reflecting continued efforts to strengthen the credibility and competitiveness of Indonesia’s capital market.
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“The exchange respected MSCI’s independence in assessing markets under its own methodology, but would seek further clarification from the index provider on the considerations behind its announcement,” Hendrik said.
The final decision will be announced by June 30, 2027, with feedback accepted until April 30, 2027. MSCI may also provide an interim update on market participants’ responses during the consultation period.
The move follows warnings in June that MSCI would consider a reclassification consultation if Indonesia failed to demonstrate sufficient progress by its November 2026 index review.
As part of its June market classification review, MSCI said investors had raised significant concerns about persistent opacity in shareholding structures and suspected coordinated trading behaviour.
Indonesian authorities have since announced measures including greater disclosure of shareholders with ownership stakes above 1 per cent, more detailed investor classification data, reporting on high shareholding concentration and a roadmap towards a minimum free-float requirement of 15 per cent.
However, institutional investors have stressed that the reforms must be implemented consistently and demonstrate a sustained, material impact on market conditions.
MSCI said significant concerns remained over market dysfunction, including suspected coordinated trading and insufficient evidence of meaningful enforcement.
Market participants also indicated that moving Indonesia to frontier market status would not adequately reflect the severity of the problems identified, MSCI said.
The proposed reclassification would mark a significant setback for Indonesia’s efforts to attract foreign investment into its equity market, which has faced scrutiny over transparency and trading practices.
MSCI will maintain its existing freeze on certain index-related changes involving Indonesian securities until further notice. The restrictions cover changes arising from index reviews and corporate events.
Under the freeze, MSCI will not increase foreign inclusion factors or the number of shares used in index calculations, add securities to the MSCI Indonesia Investable Market Index, or promote securities to higher market-capitalisation segments.
The provider will continue removing securities identified by Indonesian authorities under the high shareholding concentration framework and use shareholder disclosure data for stakes above 1 per cent to adjust free-float estimates.
