Jakarta. Indonesia retained its status as an MSCI Emerging Market, easing concerns over a potential downgrade and validating recent capital market reforms, although investors remain concerned about market transparency and trading practices.

MSCI maintained Indonesia's Emerging Market classification in its 2026 Market Classification Review, removing near-term fears that Southeast Asia's largest economy could be downgraded to Frontier Market status after being placed under an interim freeze earlier this year.

The index provider, however, highlighted concerns over shareholder transparency and signs of coordinated trading activity in Indonesia's equity market, issues that global investors say could undermine price discovery and market integrity.

"The result is constructive," said Fakhrul Fulvian, chief economist at Trimegah Sekuritas Indonesia. "MSCI explicitly acknowledged the reform measures that have been undertaken, which shows global markets recognize meaningful progress in strengthening Indonesia's capital markets."

The decision follows months of reforms by the Financial Services Authority (OJK), the Indonesia Stock Exchange (IDX) and the Indonesian Central Securities Depository (KSEI), including stricter ownership disclosure requirements, enhanced beneficial ownership reporting and more detailed investor classifications.

But Indonesia is not yet out of the woods.

MSCI said it would continue monitoring the implementation of reforms ahead of its next review in November, focusing on ownership transparency, market surveillance and trading integrity.

"The market needs to see that transparency is improving, surveillance is becoming more effective and enforcement remains consistent," Fakhrul said. "Ultimately, investors will judge not the number of new regulations, but whether trust in the market is actually being restored."

Investor confidence remains fragile. Foreign investors have sold more than Rp 70 trillion ($3.9 billion) worth of Indonesian equities this year, contributing to a roughly 30% decline in the benchmark Jakarta Composite Index, making it one of the world's worst-performing major equity gauges in 2026.

Liza Camelia Suryanata, head of research at Kiwoom Sekuritas, said MSCI's concerns over information flow indicate that global investors are increasingly focused on market quality rather than simply market size and liquidity.

"When MSCI mentions coordinated trading behavior that disrupts price discovery, it means that attention to market transparency, free-float quality and the integrity of Indonesia's capital market is becoming increasingly important," she said.