Shares in Indonesia retreated sharply by 7% in the morning session on Wednesday after MSCI decided to temporarily suspend index reviews and related changes for Indonesian stocks. The move highlights mounting investor concerns about liquidity constraints and possible capital outflows from Southeast Asia’s largest market.
MSCI has finished its evaluation of Indonesian free float practices and will postpone several index-related actions for Indonesian securities, including those scheduled for February 2026 and subsequent corporate events. This includes pausing increases to foreign inclusion factors and share quantities, halting new index additions, and preventing the movement of stocks into larger index segments.
UOB Kay Hian highlighted that Indonesia’s exchange (IDX) allows some major listed firms to have free floats as low as 10%, or even less under specific conditions such as long-established market presence or listing through exceptions like spin-offs or restructurings. As a result, mid- to large-cap names such as AMRT, ADRO, EMTK, and TBIG currently trade with free floats between 7.5–9%, despite making up 0.5–1.8% of the JCI index individually.
In UOB Kay Hian’s view, the freeze is set to take effect in the February 2026 review, and any future reduction in Indonesia’s index weighting may benefit other emerging markets—including Thailand—as passive allocations rebalance. They also noted that the MSCI Indonesia index, subject to stricter free float criteria, has underperformed the local JCI, which enforces lower free float minimums. This could mean any reduction in weightings may not trigger large-scale capital reallocations, though it still provides a psychological boost for regional equities.
Krungsri Securities noted that passive funds could respond to MSCI’s action by withdrawing capital from Indonesia, reallocating it toward other emerging markets. For active managers investing across emerging Asia, these developments act as a signal to pre-emptively reduce Indonesia exposure due to persistent liquidity issues, policy uncertainties, and limited upside.
Krungsri also observed that in this context, the Thai equity market’s relative appeal is increasing as a likely destination for fund rotation, citing its robust liquidity, attractive valuations and high equity risk premium, as well as the market’s continued under-ownership following previous reductions. The firm expects that Indonesia’s structural risks could hasten asset rotation within emerging Asia, providing a positive outlook for major Thai blue chips in the MSCI index—including ADVANC, PTT, GULF, AOT, and CPALL.
MSCI’s approach is designed to allow time for Indonesian authorities to address transparency and float limitations, mitigating investability and index turnover risks.
Should Indonesia fail to make adequate progress in boosting market transparency by May 2026, MSCI will review the country’s accessibility status. This could lead to a reduction in Indonesia’s Emerging Markets benchmark weighting or a possible downgrade to Frontier Market classification, following further consultation.
