MSCI Keeps Indonesia as Emerging Market, Warns of Concerns

Global index provider Morgan Stanley Capital International (MSCI) has decided to keep Indonesia classified as an emerging market, aligning it with other Asia-Pacific nations like China, India, and Thailand.

However, MSCI's review highlighted significant concerns voiced by institutional investors. These primarily revolve around the transparency of stock ownership structures and suspicions of coordinated trading behavior. MSCI stated that these issues "materially limit the ability of investors to assess the true free float and to rely on observed market prices as a reference for portfolio construction and index replication."

These concerns directly relate to the information flow and market infrastructure pillars of MSCI's market accessibility framework. The index provider believes these factors create apprehension among market participants regarding the feasibility of investing in Indonesia.

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Both of these concerns materially limit the ability of investors to assess the true free float and to rely on observed market prices as a reference for portfolio construction and index replication.

MSCI did acknowledge the reform efforts undertaken by Indonesia's Financial Services Authority (OJK), the Indonesia Stock Exchange (IDX), and the Indonesia Central Securities Depository (KSEI). These reforms include enhancing transparency for stock ownership above 1 percent, improving investor classification granularity, implementing a high stock ownership concentration framework, and raising the minimum free float requirement to 15 percent.

Despite these steps, MSCI emphasized the need for "consistent implementation and sustainable effects of these measures across the market." The organization will continue to monitor the coverage, consistency, and effectiveness of these reforms. MSCI warned that if Indonesia's capital market does not demonstrate sufficient improvement by November 2026, it will consider various treatment options, including a potential consultation for reclassification from an emerging market to a frontier market.

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Although this announcement is a step in the right direction, it is important for international institutional investors that there is consistent implementation and sustainable effects of these measures across the market.