Indonesian stock market, plunges again and hits circuit breaker

MSCI issues a warning about the investability of the Indonesian stock market, triggering ongoing market turbulence.

On the morning of January 29, the benchmark index of Indonesia, the Jakarta Composite Index, fell by 8%, once again triggering a market trading halt. On the afternoon of January 28, the Jakarta Composite Index also dropped by 8%, triggering a market suspension; on that day, the Indonesian stock market closed sharply down by 7.4%, at 8,320.56 points, the largest single-day decline since April 8, 2025.

After trading resumed on the morning of January 29, the decline of the Jakarta Composite Index temporarily widened to 10%, but the decline significantly narrowed in the afternoon, with the latest drop around 2%.

On the news front, Indonesia’s financial regulators responded on January 29 to MSCI’s doubts about the transparency of the country’s stock market. According to Reuters, Indonesia’s financial regulators stated on Thursday that they will increase the free float requirement for listed companies from the current 7.5% to 15%.

Reuters reported that Mahendra Siregar, head of the Indonesia Financial Services Authority, said at a press conference that to address MSCI’s concerns, the regulatory body will also take several other measures, including improving regulatory timeliness and effectiveness.

Mahendra Siregar said that current communication with MSCI is progressing positively, and they are awaiting feedback on Indonesia’s proposed measures. He hopes these measures can be implemented as soon as possible, and the relevant assessment process can be completed by March this year. He described MSCI’s feedback as a “valuable suggestion” and expressed willingness to make other policy adjustments if necessary. Additionally, the Indonesia Stock Exchange stated it will verify the related-party relationships of shareholders holding less than 5% of shares.

Previously, MSCI, the international index provider, announced on January 27 local time that due to concerns about the investability of the Indonesian market, it would temporarily freeze certain index adjustments involving Indonesian securities until the country’s regulators address issues such as excessive concentration of shareholdings in listed companies.

MSCI’s announcement indicated that it has completed consultations on the free float assessment of the Indonesian securities market. MSCI stated that although the free float data source of the Indonesia Stock Exchange (IDX) has seen slight improvements, global market investors still express concerns that, due to long-term opacity in shareholding structures and worries about potential collusive trading behaviors that could interfere with normal pricing, fundamental investability issues remain.

For these reasons, MSCI will implement a temporary freeze on specific changes related to the index assessment (including the February 2026 index review) or corporate events involving Indonesian securities that are related to the index. Specific measures include: freezing all upward adjustments of Foreign Inclusion Factors (FIF) and Number of Shares (NOS); not adding Indonesian securities to the MSCI Investable Market Index (IMI); and not implementing any upgrades across size-based indices (such as from small-cap to standard indices).

MSCI stated that if progress in achieving the necessary transparency improvements is insufficient by May 2026, it will reassess Indonesia’s market access status. To address these concerns, Indonesia’s market needs to provide more detailed and reliable shareholding structure information (possibly including monitoring of large shareholder concentration) to support a robust assessment of the free float and investability of Indonesian securities.

This also means that if subsequent progress falls short of expectations, the weight of all Indonesian companies in MSCI’s Emerging Markets Index could be reduced, or even downgraded to frontier markets. Once downgraded to frontier markets, it will significantly impact passive capital flows into Indonesia.

Following MSCI’s announcement, UBS downgraded Indonesia’s stock market rating to neutral. Goldman Sachs stated in a research report that MSCI’s assessment of Indonesia’s market investability could trigger capital outflows amounting to billions of dollars. Goldman Sachs has downgraded Indonesia’s stock market rating to “Reduce” and warned that if Indonesia is reclassified as a frontier market, capital outflow pressures will rise sharply.