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Indonesia Faces MSCI Scrutiny Over Stock Market Downturn

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  Published in Stocks and Investing on Wednesday, January 28th 2026 at 3:29 GMT by Channel NewsAsia Singapore
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JAKARTA, Indonesia - January 28th, 2026 - Indonesia's government has pledged to address concerns raised by MSCI following a significant downturn in the Jakarta Composite (JCI) stock index. The JCI has fallen almost 11% this year, prompting a review of the country's eligibility for inclusion in key global benchmarks, most notably the MSCI Emerging Markets Index. Finance Minister Sri Mulyani Indrawati stated on Wednesday that the government is actively evaluating a request from MSCI and will "take necessary steps" to maintain Indonesia's attractiveness to international investors.

This isn't merely a matter of national pride; continued inclusion in indices like MSCI's and FTSE Russell's is vital for attracting foreign investment. These indices serve as the foundation for trillions of dollars in assets under management globally. Funds benchmarked against these indices must hold stocks within them, creating a powerful incentive for capital inflow. Losing that inclusion, or even being flagged for potential exclusion, could trigger significant capital flight and destabilize the Indonesian economy.

MSCI is scheduled to review Indonesia's status within its Emerging Markets Index in May. The current market volatility is occurring at a critical juncture, placing considerable pressure on Indonesian authorities to demonstrate commitment to market stability, liquidity, and accessibility - all key criteria for index inclusion. Liquidity, specifically, is becoming a focal point. The recent declines, combined with relatively low trading volumes compared to other emerging markets, are raising red flags amongst index providers.

While the JCI's performance is a major driver of the current scrutiny, concerns extend beyond simple market returns. Several investors have voiced anxieties regarding Indonesia's regulatory environment and levels of transparency. These issues, though acknowledged by the government, have proven difficult to resolve comprehensively. Previous attempts to streamline regulations and enhance corporate governance have met with varying degrees of success, and the current downturn is exacerbating existing vulnerabilities.

A Deeper Dive into the Concerns

Analysts point to several contributing factors to the JCI's recent woes. Global economic headwinds, including higher interest rates in developed economies and ongoing geopolitical tensions, are certainly playing a role. However, domestic issues are also at play. Commodity price fluctuations, particularly in key Indonesian exports like palm oil and coal, have impacted corporate earnings. Furthermore, concerns regarding the upcoming presidential elections, scheduled for February 2024 (though past, the political ramifications still linger in market sentiment) have contributed to investor uncertainty.

The issue of market accessibility is also crucial. While Indonesia has made strides in opening its capital markets to foreign investors, limitations remain. Restrictions on foreign ownership in certain sectors, bureaucratic hurdles, and a complex tax system continue to deter some potential investors. Improving these aspects is seen as essential to bolstering the JCI's appeal.

The government has previously implemented measures to improve its capital markets, including initiatives to promote initial public offerings (IPOs) and increase the number of listed companies. However, these efforts haven't been enough to offset the negative impact of recent market trends.

What's Next?

Minister Indrawati's statement signals a renewed commitment to addressing the concerns raised by MSCI. Potential measures under consideration could include regulatory reforms to enhance transparency and simplify investment procedures, as well as initiatives to boost market liquidity. This may involve encouraging institutional investors to participate more actively in the Indonesian stock market and exploring options for easing restrictions on foreign ownership.

The coming months will be critical. The government must demonstrate tangible progress in addressing the concerns before the MSCI review in May. Failure to do so could result in a downgrade, triggering significant capital outflows and potentially hindering Indonesia's economic growth. The situation is being closely watched by regional investors and analysts, with many predicting a volatile period for the JCI as the MSCI review approaches. A proactive and decisive response from the Indonesian government will be crucial to maintaining its position as a key emerging market destination.