Indonesia is moving forward with plans for public share offerings totaling about US$11 billion as it aims to comply with stricter minimum free-float requirements. The initiative follows MSCI Inc.’s warning that the country risks being reclassified as a frontier market, a change that could alter investor flows and market status.
This regulatory response has been triggered by last month’s sharp market decline, the most severe in nearly 30 years, after MSCI raised concerns about investability and the limited public float available to investors.
Since the downturn, authorities have accelerated plans to meet MSCI’s requirements, setting a March deadline for reforms. To align with the new regulations, 267 Indonesian firms must increase their proportion of publicly traded shares from the current 7.5% to 15%.
At the end of January, the chief executive of the Indonesia Stock Exchange, Iman Rachman, resigned following the MSCI warning and a sharp decline in the stock market.
Indonesia has been given a deadline in May to demonstrate regulatory reforms that could safeguard its market standing.
Grantham Mayo Van Otterloo & Co. (GMO) is the latest global fund that withdrew from Indonesia. The move came after MSCI issued a notice that Indonesia may be moved to frontier market status unless transparency in shareholdings is improved.
Meanwhile, GMO identified Thailand as a preferred market, citing the recent election victory of Prime Minister Anutin Charnvirakul, which is expected to ensure governmental stability. As a result, Thai shares now represent one of the firm’s largest overweight positions globally.
FTSE Russell has followed the same step as MSCI and decided to postpone its review and rebalancing of Indonesian stocks, which was originally scheduled for March 2026. The decision serves as a stability buffer while the domestic market undergoes reforms to trading regulations and share ownership structures.
The decision by FTSE Russell to postpone the review of Indonesian stocks is primarily driven by uncertainty surrounding the calculation of public shares, or “free float,” for domestic issuers. This move serves as a stability buffer intended to prevent potential market disruptions and detrimental turnover in trading activity while the domestic market implements infrastructure overhauls and reforms to trading regulations. These ongoing reforms include adjustments to minimum free float requirements to align with global standards and address transparency issues.
Additionally, the postponement reflects feedback from an external advisory committee and mirrors a recent decision by MSCI, which was prompted by concerns over share ownership structures and insufficiently transparent price formation.
