Indonesian equities could experience significant capital withdrawals totaling more than $2 billion in the coming months if MSCI implements a revision to its methodology. The anticipated shift raises questions about the accessibility and liquidity of one of Southeast Asia’s most important stock markets.
Market participants are closely monitoring MSCI Inc.’s pending decision on whether to revise its criteria for calculating free float — the proportion of shares considered available for trading and a crucial aspect in determining index weightings.
The index provider is expected to finalize its stance by the end of January after considering industry input, with any adopted changes set to take effect at the May index review. Indonesia already records the lowest average free float among Asian markets. Should MSCI conclude stock availability is even lower than reported, funds that track its benchmarks may be compelled to reduce their positions in affected securities.
A final decision from MSCI is anticipated by January’s end. If the revised methodology is confirmed, changes would be enforced in the upcoming May index review.
According to the publication from MSCI in September 2025, the MSCI Global Investable Market Indexes (GIMI) are based on free float-adjusted market capitalization. Free float is defined as the portion of shares available for trading in the open market. MSCI applies a Foreign Inclusion Factor (FIF) to each security to reflect its free float–adjusted capitalization. As investor objectives are not always disclosed, shareholdings are classified as free float or non-free float depending on the type of shareholder.
The enhancements, announced on February 28, 2025, and scheduled for implementation in May 2026, include:
Increased Precision: The free float adjustment factors (Foreign Inclusion Factors/Domestic Inclusion Factors) will be rounded to finer intervals (2.5%, 0.5%, or 0.1%) depending on the free float level, offering a more precise reflection of available shares.
Enhanced Stability: New buffers of ± 2.5%, ± 0.5%, and ± 0.1% will be introduced to prevent unnecessary changes in a stock’s weighting unless its actual free float moves significantly relative to its current index factor.
Sovereign Wealth Fund (SWF) Holdings: The current 7% ownership threshold for non-domicile SWF holdings to be considered strategic will be removed. Instead, these holdings will be assessed based on qualitative indicators like board representation or strategic alliances.
