Jakarta. Investors are bracing for MSCI’s annual market classification review this week, with the outcome expected to shape foreign fund flows and the near-term direction of Indonesian equities.

MSCI is scheduled to announce its Annual Market Classification Review on June 24, Jakarta time.

“Market attention is focused on the possibility that MSCI could lift Indonesia’s freeze status, which has been one of the factors behind weaker foreign inflows into the domestic equity market,” BRI Danareksa Sekuritas (BRIDS) said in a research note.

According to the brokerage, the MSCI freeze has weighed on the Jakarta Composite Index (JCI) through three main channels: limiting potential passive inflows from global index-tracking funds, reducing Indonesia’s appeal among foreign investors, and increasing the volatility and selectiveness of foreign fund flows.

BRIDS outlined two possible scenarios ahead of the review:

Under a positive scenario, MSCI could issue a more constructive assessment of Indonesia, helping restore foreign investor confidence. Such an outcome could encourage the return of both passive and active inflows, providing further support for the JCI’s recent recovery.

Under a negative scenario, MSCI could maintain Indonesia’s freeze status or issue an unfavorable assessment. This could keep foreign investors on the sidelines, prolong capital outflows, and trigger a short-term correction in the benchmark index.

Foreign investors have recorded net sales of between Rp 68.25 trillion ($3.83 billion) in Indonesian equities so far this year, with the outflows concentrated in large-cap banking stocks such as Bank Rakyat Indonesia, Bank Central Asia, and Bank Mandiri.

However, Helmy Kristanto, chief economist at BRI Danareksa Sekuritas, said Indonesia's financial markets may be more resilient to foreign selling than widely perceived.

"Despite persistent foreign selling, the equity market has seen a considerable rebound from recent lows," Helmy said.

He said historical market trends suggest that improving macroeconomic conditions, supportive government policies, attractive valuations, and easing external uncertainties have often played a greater role in driving Indonesian equities than foreign flow trends alone.

The JCI has nevertheless remained under pressure this year, falling about 29% in 2026 and making it one of the world's worst-performing major equity markets.

Brokerage firm Pilarmas Investindo Sekuritas said rising geopolitical risks in the Middle East had become the market’s primary concern, prompting investors to reduce exposure to risk assets across the region.

Markets had initially responded positively to reports of a proposed 60-day peace roadmap between the United States and Iran, including plans to ease hostilities in Lebanon. However, sentiment quickly deteriorated after reports emerged that Iran had suspended negotiations.

Domestic factors also added to market pressure, with investors closely monitoring the upcoming MSCI review.

“Market participants are adopting a wait-and-see approach ahead of the MSCI announcement, which could become an important catalyst for foreign investment flows,” Pilarmas said.

Indonesia’s capital markets have come under pressure since MSCI in January flagged concerns over market transparency and warned of a potential downgrade to frontier market status, a move considered unlikely but one that could trigger outflows of as much as $13 billion.

Jakarta’s benchmark stock index has fallen about 29% so far in 2026, making it one of the world’s worst-performing major equity markets. 

Last week, MSCI downgraded Indonesia’s information flow criterion to “negative,” citing limited transparency in ownership data and market activity.

The index provider said the lack of transparency undermines price discovery and constrains global investors’ ability to assess the true free float of listed companies.