MSCI Flags Further Concerns About Indonesia's Market

By Amanda Lee and Ying Xian Wong

Global index provider MSCI Inc. has flagged more concerns about Indonesia's market, dealing a fresh hit to one the world's worst-performing stock markets as it faces a potential downgrade next week.

Issues raised included limited transparency of shareholding structures and indications of coordinated trading that undermined proper pricing, MSCI said in a review Thursday.

"These issues materially limit international institutional investors' ability to assess true free float and to rely on observed market prices for portfolio construction and index replication," MSCI said.

It downgraded Indonesia's information flow criterion--which gauges the quality, timeliness and availability of market information to international investors--to negative.

This comes ahead of MSCI's decision next week to determine if Indonesia will hold on to its emerging-market status or drop to a frontier market classification, a demotion that analysts say will spur heavy capital outflows.

It would also mark a sharp reversal of fortunes for a market once favored for Indonesia's steady growth and political stability.

In 2025, the Jakarta Composite Index rose over 22% despite broad-based volatility centered on Trump tariffs and bubbling worries about the direction government policy was starting to take toward the end of the year. This year, the benchmark index has slumped 29% so far as worries about tariffs were usurped by the war in the Middle East and fiscal concerns deepened.

The JCI was last 0.6% lower at 6132.58.

In late January, MSCI flagged investability issues, followed by fellow index provider FTSE Russell.

Indonesia has also been scrutinized by ratings agencies. Moody's Ratings and Fitch Ratings have both cut their outlooks for Indonesia to negative, citing a lack of transparency and reliability in policymaking.

Authorities have rolled out various market reforms, such as doubling the minimum free-float requirement to 15% of total shares, but analysts say more needs to be done to restore confidence.

The selloff has hit the rupiah too. Even with constant intervention by the central bank, it has been one of the worst-performing currencies in Asia so far this year.

A series of rate hikes by Bank Indonesia have eased some of the pressure on the rupiah recently, but it is only just off the record lows it has languished at in recent months.

If MSCI does downgrade Indonesia, outflows could be large enough to push the dollar above 18,000 rupiah, RBC Capital Markets Asia macro strategy director Abbas Keshvani said.

The dollar recently traded at 17,800 rupiah Friday, compared to 18,190 rupiah at the nadir of the Indonesian currency's weakness in early June.

However, Keshvani said MSCI could take a more lenient approach to avoid further concentration within its emerging markets index, where China, South Korea and Taiwan account for 69% of the benchmark.

The recent appointment of a new Indonesia Stock Exchange chief could also provide grounds for delaying a decision, giving the new leader time to address the issues, he added.

Maybank Sekuritas' Jeffrosenberg Chen Lim expects Indonesia to retain its emerging market status. The head of research noted that MSCI's focus seems to have shifted from technical market access issues to trust and governance concerns, which are often more difficult and time-consuming to address.

Write to Amanda Lee at amanda.lee@wsj.com and Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

June 19, 2026 00:26 ET (04:26 GMT)