MSCI proposes pulling Indonesia out of its emerging-market indexes, and Jakarta stocks plunge

Indonesian stocks plunged on Friday after MSCI said the country no longer merits emerging-market status and proposed reclassifying it as a standalone market, a step that would take Indonesian shares out of the benchmarks that index funds around the world follow.

A proposal that skips frontier status

MSCI published the proposal at 4:40 p.m. ET on Thursday, Oct. 15, before Friday's open in Jakarta. It said Indonesia's continued classification as an emerging market was "no longer appropriate," pointing to continued suspected coordinated trading and a lack of evidence of meaningful enforcement, despite reforms Indonesian authorities have announced.

The index provider went further than a simple downgrade. Feedback from market participants suggested that moving Indonesia to frontier-market status "would not properly recognize the depth of the market problems," MSCI said, so it is proposing standalone status instead. Standalone markets sit outside both MSCI's emerging-market and frontier-market indexes, the benchmarks that index funds track and that many active managers measure themselves against. Argentina, Lebanon and Palestine are among the markets with that label, and none is in Asia, Bloomberg reported.

The change is not final. MSCI is taking feedback until April 30, 2027, and will announce a decision on or before June 30, 2027. It said it expects to proceed unless the consultation turns up "clear evidence of material improvements in market governance and functioning." Its consultation paper asks investors whether a reclassification should happen in one step, and whether frontier status would fit better if they disagree with the proposal. MSCI is also keeping in place, until further notice, a freeze it has applied since January on certain index changes for Indonesian stocks. Under it, MSCI will not raise the share of a company it counts as available to foreign investors or the number of shares it counts, add companies to its broader Indonesia index, or move stocks up into larger size groups. It will keep deleting stocks that Indonesian authorities flag for highly concentrated ownership and keep using the 1% shareholder disclosures to adjust its free-float estimates.

How the selling unfolded

The Jakarta Composite Index fell 8% as trading opened, setting off a 30-minute halt at 8:58 a.m. local time, Investortrust.id reported. Selling deepened when trading resumed at 9:28 a.m. The index dropped as low as 5,193.22, down 11.4% from Thursday's close of 5,863.78, and ended the morning session at 5,233.00, a loss of 630.78 points, or 10.8%, according to Google Finance data. Most of the market's biggest companies, including Bank Central Asia, Bank Rakyat Indonesia, Bank Mandiri and Astra International, fell to their daily lower price limits, the Jakarta outlet said.

The currency was calmer. The rupiah traded at about 18,045 per dollar around midday in Jakarta, little changed from Thursday. In New York, the iShares MSCI Indonesia ETF, a U.S.-listed fund that tracks an MSCI index of Indonesian stocks, had finished Thursday's regular session before the announcement and slipped 1.3% to $11.53 in after-hours trading.

A market already shrinking inside the index

Friday's drop adds to a punishing year. The Jakarta index had fallen more than 30% in 2026 before Friday, the worst performance among the world's stock markets, and foreign investors had sold a net $4.7 billion of Indonesian shares, according to Reuters, which also noted that Moody's and Fitch have both cut their outlooks on Indonesia's sovereign credit rating to negative this year.

MSCI's consultation paper shows how much ground Indonesia has already lost inside its benchmarks. The MSCI Indonesia Index was worth $53.4 billion on a free-float basis at the end of September, down 55% from $119.1 billion at the end of 2025. It held nine stocks, down from 18, and its weight in the MSCI Emerging Markets Index fell from 1.16% to 0.43% over the same period. Financial companies make up about 72% of the index.

Indonesian authorities have tried to head off a downgrade. Their reforms include disclosure of shareholders who own more than 1% of a company, more detailed classification of investors, reporting on stocks whose ownership is highly concentrated, and a plan to require a minimum free float of 15%. In June, MSCI said it would consider a consultation if it did not see enough progress by its November 2026 index review. Investors told MSCI the progress had not shown up consistently across the market, the company said.

Not every index provider has reached the same view. FTSE Russell reaffirmed Indonesia's emerging-market status earlier this month, Bloomberg reported.

What forced selling could mean

If the proposal goes through, funds that track MSCI's emerging-market indexes would have to sell their Indonesian holdings, and active managers benchmarked to those indexes would have less reason to own them. "All of a sudden, the market opened and it had already crashed," said Liza Camelia Suryanta, head of research at Kiwoom Sekuritas Indonesia, in comments gathered by Reuters. She said prices hit the lower auto-reject limit and trading was halted immediately, the first time that had happened in her 20 years in the stock market. Tan Altundag, an emerging-equities investment manager at Pictet Asset Management in Hong Kong, called the proposal "a more negative outcome than the market had anticipated."

Irman Faiz, an economist at Bank Danamon Indonesia, said large-cap banks are particularly exposed. Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, said the bigger risk for Indonesia may be pressure on the rupiah from foreign outflows rather than the direct hit to stocks.

Jakarta pushes back

Jeffrey Hendrik, president director of the Indonesia Stock Exchange, said in a statement that the exchange respects MSCI's independence and will ask for clarification of the considerations and assessments behind the announcement. Friderica Widyasari Dewi, who chairs Indonesia's Financial Services Authority, known as OJK, said the regulator respects MSCI's review and that Indonesia's stock market remains attractive, citing steady economic fundamentals and a growing investor base, Investortrust.id reported.