MSCI Considers Downgrading Indonesia’s Market Classification

MSCI Considers Downgrading Indonesia’s Market Classification

MSCI Inc. is considering downgrading Indonesia’s equity market classification to standalone-market status, citing concerns about market accessibility and investability, according to an update released early Friday in Jakarta. The proposed change would bypass frontier-market status and remove Indonesia from MSCI’s main global equity indexes. A final decision is expected by mid-2027.

The potential reclassification follows months of efforts by Indonesian authorities to address MSCI’s concerns about market governance. Standalone-market status would place Indonesia in the same broad classification category as markets including Argentina, Lebanon and Palestine.

A downgrade to frontier-market status could prompt substantial outflows from Indonesian equities. Goldman Sachs estimated that passive investment outflows could reach as much as $13 billion under an extreme scenario. Citigroup analysts said a move to standalone status would have a more severe impact because Indonesia would be excluded from MSCI’s main global indexes.

The announcement triggered a sharp sell-off in Indonesian stocks, catching investors and government officials off guard. The Jakarta Composite Index fell 11.6%, its largest decline since January 1998. Trading was suspended for 30 minutes after a steep drop at the market open.

Sell-Off

The sell-off also reduced the wealth of Indonesia’s richest business figures. According to the Bloomberg Billionaires Index, the country’s wealthiest tycoons were on track to lose more than $6 billion collectively in a single day.

In response, the Indonesia Stock Exchange said it would seek clarification from MSCI regarding the proposed reclassification. The exchange pointed to what it described as significant progress and reform measures.

Investors are likely to remain focused on the outcome of discussions between Indonesian authorities and MSCI, as uncertainty over the country’s market classification continues to weigh on sentiment toward Indonesian equities.