MSCI Inc. has again decided to delay its review of Indonesian stocks as it needs more time to assess whether recently announced transparency reforms are effective.
The index creator said the country’s moves toward expanded disclosures, more detailed investor classification and a roadmap to raise the minimum float requirement to 15% were a step in the right direction. However, what is crucial for global investors is the consistent implementation and lasting impact of such measures on the market, it said in a statement on Tuesday release.
“If sufficient progress is not evident by the time of the MSCI index review in November 2026, MSCI will consider a range of options for the appropriate treatment of the Indonesian market, potentially including a consultation on reclassifying Indonesia from emerging markets to frontier markets,” the statement said.
The move is likely to add to investor uncertainty that has been building for months after MSCI announced a possible downgrade to frontier status in January due to concerns about investability and the limited number of stocks available for public trading. The warning, which triggered a market downturn, prompted authorities to introduce a series of reforms.
“The market retains emerging market status, but with a cautionary note,” said Mohit Mirpuri, partner at SGMC Capital Pte in Singapore. “The task for regulators now is to demonstrate credible progress in the coming months.”
The update from Tuesday already delayed from May, after the index compiler decided last week to revise Indonesia’s information flow rating in its annual accessibility review to negative due to limited transparency in shareholder structures, coordinated trading behavior that undermines pricing and a lack of corporate disclosure in English.
Uncertainty leading up to the review had sidelined many market participants, with investors citing the overhang of potential outflows. Combined with concerns about the political direction and fallout from the Iran war, the benchmark Jakarta Composite Index had become the world’s worst-performing major index this year. The value rose as much as 1.2% in the morning before falling to 0.6% at 9:30 a.m. local time.
“The macro is clearly a big challenge,” said Yi Ping Liao, fund manager at Franklin Templeton. “I still think there are things that need to be sorted out and until then I don’t think there are good reasons to be in Indonesia.”
Regulators have introduced a number of reforms in recent months, including increasing the minimum allowance. The Indonesian stock exchange has taken the unusual step of identifying companies with high shareholder concentration – a theme that underpinned MSCI’s decision remove some of these stocks were removed from the indexes in May. The installation The fact that capital markets veteran Jeffrey Hendrik was recently named CEO of the exchange has also calmed some nerves.
According to Hasan Fawzi, head of capital markets supervision at the Financial Services Authority, the decision “provides impetus for the continuation, strengthening and acceleration of the capital markets reform agenda” initiated since the beginning of the year.
An ultimate call to maintain Indonesia’s emerging market status could stem foreign currency outflows and ease pressure on the rupiah. The currency hit back-to-back lows, weakening more than 6% against the U.S. dollar this year and among the worst performers in its peer group. Foreign investors also sold $4 billion worth of stocks, pushing the benchmark index down about 30%.
Such an outcome could also provide some relief for President Prabowo Subianto, whose populist agenda and push for tighter government control have unsettled investors. Fears of bigger things government intervention in the case of raw material exports, the resources have been sidelined, while the abrupt firing The accusation by the head of Indonesia’s food authority, central to Prabowo’s free meals program, and a subsequent corruption investigation have added to the unrest.
“I find it positive that MSCI has recognized the recent reforms,” said Felix Darmawan, analyst at PT BCA Sekuritas. “The focus is now shifting from announcing policies to implementing them. If implementation is strong next year, the risk of reclassification may begin to subside.”
Investors now await FTSE Russell’s valuation. The index provider said last month that it would delay Indonesia’s reassessment, including changes in free float and stock additions, until at least the September review to allow for further monitoring.