MSCI's downgrade proposal puts Indonesia’s EM status at risk

New York - MSCI Inc., the index provider behind the MSCI Indonesia Indexes, has announced a proposal to re-evaluate the classification of these indexes. In a press release, MSCI stated that it will seek input from market participants on this potential change before making a final decision by the end of June 2027. The announcement comes amid concerns about the investability of the Indonesian equity market, with participants pointing to ongoing opacity in shareholding structures and possible coordinated trading.

While Indonesian authorities have taken steps to address these issues—such as enhancing disclosure of shareholders with ownership above 1% and a roadmap towards a minimum free float requirement of 15%—institutional investors argue that progress has been inconsistent. MSCI's concerns extend beyond just structural issues, as market dysfunction persists, including continued suspicions of coordinated trading and a lack of evidence of effective enforcement measures.

The company believes that a reclassification to Frontier Markets would not sufficiently acknowledge the depth of these market problems. In light of the feedback received during the consultation period, MSCI could either proceed with the proposed reclassification or decide to maintain the current status. A freeze on certain index-related changes for Indonesian securities will remain in effect until further notice, and MSCI will not make any adjustments to Foreign Inclusion Factors, Number of Shares, or migrate securities across size-segment indexes. The company is open to further input from market participants until April 30, 2027.