Innovest X Securities revealed that MSCI is currently reviewing its index calculation methodology, with a greater emphasis on the free float criterion. This focus may significantly impact the Indonesian stock market, as it has the lowest free float ratio in Asia.
Currently, over 200 Indonesian listed companies have a free float of less than 15%, which is below the standard of many regional markets. If MSCI actually adjusts its index calculation criteria, this could lead to a rebalance and a reduction in the weighting of Indonesian stocks in the MSCI Index.
Initial assessments indicate that the adjustment may prompt foreign institutional investors to sell off Indonesian stocks, leading to estimated capital outflows of around $2 billion (about THB 62 billion). Meanwhile, other markets in the region, including the Thai market, could benefit from such capital rotation, supporting continuing foreign capital inflows into Thailand.
Previously, the Thai stock market was buoyed by external factors, such as China’s relaxation of margin trading rules and domestic factors like rising expectations for political clarity after the election. These factors may bolster investor confidence and increase the potential for further fund inflows in the future.
Krungsri Securities stated that the Indonesian stock market dropped by 1.24% yesterday, reflecting investors’ cautious stance toward the risk of the weighting of Indonesian stocks being rebalanced in the MSCI Index due to changes in the calculation of the free float ratio.
MSCI is currently concluding its public consultation on the adjustment of Indonesian stocks’ free float calculation, which was open from October to December of last year. Results are expected to be announced at the end of January 2026 and will take effect in the May 2026 index rebalance.
Based on MSCI’s model, the revised approach will increase the portion of stocks classified as non-free float, decrease the Indonesian stocks’ free float ratio, and could result in a further reduction of Indonesian stock weightings in the MSCI Index.
Bloomberg data estimates that, should the weighting actually be cut, capital outflows from the Indonesian stock market could reach about $2 billion. Analysts believe that this could trigger pre-emptive sell-offs by active funds in advance of the rebalance. However, this issue may be positive for other markets in the MSCI emerging markets group, especially those with higher free float ratios, such as Thailand, where early allocation shifts could provide support for the Thai market.
MSCI’s free float review is being closely watched by regional institutional investors, since the MSCI Index is used as a benchmark for many passive funds and large foreign funds. Historically, changes to the MSCI index criteria have resulted in portfolio rebalancing by funds to match new weights, especially in markets with liquidity or ownership structure limitations, often leading to short-term capital flow volatility.
The Thai market is viewed as having favorable free float structures and liquidity, supporting foreign investor participation as compared to other countries in the region. During times of intra-Asia capital flows, the Thai stock market is often among the main targets for incoming funds.
Moreover, the recent return of foreign fund flows into Thai equities has been supported by both external and domestic positive factors, especially expectations surrounding economic policy directions and political clarity after the election. These are critical factors for foreign investors’ decisions in the period ahead.
Natapon Khamthakrue, Assistant Managing Director, Investment Analysis Division at Yuanta Securities (Thailand), noted that shares subject to high short selling and lagging the market (Laggard) may see a rebound following fund flows. These include:
- Minor International Public Company Limited (SET: MINT).
- Bangkok Chain Hospital Public Company Limited (SET: BCH).
- Amata Corporation Public Company Limited (SET: AMATA).
- WHA Corporation Public Company Limited (SET: WHA).
- The Erawan Group Public Company Limited (SET: ERW).
- Bangkok Expressway and Metro Public Company Limited (SET: BEM).
- Srisawad Corporation Public Company Limited (SET: SAWAD).
- Muangthai Capital Public Company Limited (SET: MTC).
- Home Product Center Public Company Limited (SET: HMPRO).
Nevertheless, Thai stocks are likely to continue an upward trend. The short-term SET index range is estimated at 1,288-1,317 points. This could be the beginning of an uptrend, fueled by foreign investment inflows. In addition, with Thailand approaching the election season and the announcement of dividends for 2025’s operations, Thai equities may be a safe pick for speculative trading in the near term.
Narongdaht Chantarapisal, Technical Investment Analyst at AIRA Securities, said fund flows are moving from the West (the U.S. and Europe) to Asian and Thai markets as a risk reduction measure amid geopolitical and trade war tensions. While Thai stocks are primarily “Old Economy” businesses, they are considered a “Safe Zone” in the short run. Thai stocks continue to stand out in the region, as the index remains undervalued and in an attractive investment zone.
