The Jakarta Composite Index (JKSE) on the Indonesia Stock Exchange extended its loss on Thursday by 8%, further from its 7.35% drop yesterday. This decline followed significant concerns expressed by MSCI regarding the investability of the Indonesian stock market.
Initially, MSCI will suspend the increase of the Foreign Inclusion Factor in the Indonesian market and will not add any stocks to the MSCI Investable Market Indexes (IMI). Moreover, there will be no upgrades from the Small Cap Index to the Standard Index from today until May 2026, until the regulatory authority can address the structural issues in the market.
Krungsri Securities (KSS) stated that the Indonesian stock market is signaling divergence and has started to underperform clearly compared to the Emerging Market Asia stock market. The MSCI EM Asia Index rose 6.3% from before, while the JKSE increased only 3.8%.
The broker estimated that the market is being driven by speculation that Indonesia may be downgraded by MSCI due to the new free float criteria, with the results of the consultation to be announced at the end of January 2026 and effective for the index in the May 2026 round.
Regarding the impact on the Thai stock market, from the Passive Fund perspective (according to Bloomberg’s report), it is estimated that about U.S. 2 billion could flow out of the Indonesian market. However, in relative terms compared to the entire MSCI EM, the dispersed investment will have a limited positive effect on other stock markets like Thailand’s.
For Active Funds investing in EM Asia, this new scenario means those funds will have to reduce their weighting in Indonesian stocks due to lower benchmark weights and lower perceived foreign investor liquidity. There may also be pre-emptive reductions.
Compared to other EM Asia regional stock markets, the Thai stock market stands out for Active Funds as a destination for fund rotation due to strengths such as high liquidity, low valuation—with an equity risk premium of 5.3%, significantly higher than Indonesia at -0.62%—and fund flows that are still under-owned, following large previous sell-offs. In 2025, foreigners were net sellers to the tune of THB 107 billion.
Thus, strategically, there is an opportunity for Thai stocks to receive a re-rating and rotation from Active Funds. The stocks likely to be targeted are major MSCI stocks with strong fundamentals, such as DELTA, ADVANC, PTT, CPALL, AOT, BDMS, GULF, PTTEP, SCC, TRUE, KBANK, KTB, MINT, SCB, CPAXT, CPF, HMPRO, TTB, and BH.
Mr. Piriyapon Kongvanich, Head of Fundamental Analysis of Research Division at Bualuang Securities (BLS), stated that capital inflows from foreign investors have started to return to the Thai stock market, mainly into cyclical stocks, value stocks, and high-dividend-yield stocks, which have more attractive valuations than developed markets, resulting in outstanding performance among several large-cap groups.
Stocks that have recently attracted foreign buy interest include the energy sector—for example, PTT PCL (SET: PTT)—telecommunications such as Advanced Info Service PCL (SET: ADVANC), and the banking sector, such as SCB X PCL (SET: SCB) and Bangkok Bank PCL (SET: BBL). This reflects the portfolio adjustment of foreign investors, who are increasing weightings in cyclical and dividend stocks.
This supporting factor is an important one boosting the robust recovery of the Thai stock market, which is moving in line with the rebound trend in Asian equity markets following U.S. stock markets. In particular, the positive sentiment from large U.S. technology companies is supporting confidence in Thai electronics stocks, led by Delta Electronics (Thailand) PCL (SET: DELTA).
From a valuation perspective, it is assessed that the Thai stock market remains attractive compared to other markets. The 2026 forward PER is about 13.4 times, close to the ASEAN average of around 12.5 times, and lower than the U.S. stock market, with a PER above 22 times. Hence, Thailand remains on the radar for foreign investors seeking less expensive markets.
Meanwhile, Asia Plus Securities stated that, in early 2026, the U.S. dollar has shown clear depreciation since the start of the year, resulting in capital flows moving out of the U.S. and into Asian markets and commodities.
However, the Thai economy is still experiencing a fragile recovery due to a strong baht and weak domestic purchasing power. Investors are therefore advised to monitor the fund flow trend and selectively accumulate large-cap stocks currently being gradually bought by foreigners.
