Rising local dominance a double-edged sword for IDX

JAKARTA: The stock market has seen a gradual recovery despite remaining vulnerable to foreign selloffs amid global headwinds and lingering concerns over index provider Morgan Stanley Capital International’s (MSCI) upcoming review, with domestic investors increasingly in the driver’s seat.

The Indonesia Stock Exchange (IDX) Composite Index has shown signs of a rebound following a severe drop in the first half of the financial year (1H26).

It has been on a gradual uptrend since the middle of the year and gained 4.64% in the month of August alone.

The benchmark index closed at 6,541.38 points last Friday after dropping in line with other markets of the region, which is still down 25% since the beginning of the year, making it the worst performer among major Asian indices.

The market rout in the 1H26 was triggered by a transparency warning from MSCI earlier this year, which led to panic-selling and two trading halts.

MSCI raised concerns over Indonesia’s market transparency and “investability” since late 2025 through talks with authorities and market participants.

In late January, the index compiler still considered the local stock market opaque, prompting it to freeze index additions for Indonesian equities and warn that the country could be downgraded from emerging market to frontier market status in its indexes unless several issues were addressed.

MSCI’s warning spooked investors, with investment bank Goldman Sachs estimating that a downgrade by the index compiler could cause as much as US$13bil in capital outflows.

The capital market reform plan authorities came up with included raising the free float share of listed stocks and reforming the high shareholder concentration framework to improve market transparency.

While MSCI acknowledged the reform efforts and maintained Indonesia’s status as an emerging market in its June review, the index provider said a downgrade was still possible “should sufficient progress not be evident by the time of the November 2026 MSCI index review”.

Its decision to freeze index changes involving Indonesian equities also remains in place, limiting the inclusion of new stocks and increases in index weightings.

Over the past months, MSCI has removed several major Indonesian stocks in its quarterly rebalancing review, including large-cap equities like PT GoTo Gojek Tokopedia, PT Barito Renewables Energy and PT Amman Mineral Internasional.

Capital market analyst and founder of Traderindo Wahyu Laksono explained that further changes by MSCI could force foreign funds to sell Indonesian stocks following their removal from the index. — The Jakarta Post/ANN