Jakarta. Indonesian stocks rebounded nearly 5% this week as investors weighed planned capital market reforms, potential investment by sovereign wealth fund Danantara and lingering concerns over foreign fund outflows following warnings about the country’s emerging-market status.

The Jakarta Composite Index (JCI) rose 4.9% to 5,439.258 in the week ended Oct. 23, according to Indonesia Stock Exchange (IDX) data. The recovery lifted the exchange’s total market capitalization by 4.66% to Rp 9,583 trillion ($529.6 billion), from Rp 9,157 trillion a week earlier.

Trading activity also strengthened, with average daily transaction value increasing 25.42% to Rp 20.34 trillion from Rp 16.22 trillion in the previous week.

However, foreign investors remained net sellers. They offloaded a net Rp 1.28 trillion worth of Indonesian stocks on Friday alone, bringing their cumulative net selling for 2026 to Rp 94.87 trillion.

Pilarmas Investindo Sekuritas said planned capital market reforms were among the factors supporting the rebound. The IDX plans to exclude stocks with highly concentrated share ownership from the JCI calculation starting Nov. 2, following MSCI’s warning that Indonesia risks being downgraded from emerging-market to standalone-market status.

“The move follows MSCI’s warning about the risk of Indonesia’s stock market being downgraded from emerging market status to standalone market status,” Pilarmas said in a research note on Friday.

The proposed changes come as regulators face pressure to improve market transparency and address concerns over concentrated ownership and trading practices. Investors are watching whether the reforms will be sufficient to restore confidence and prevent further withdrawals by foreign funds.

BRI Danareksa Sekuritas (BRIDS) warned that a downgrade could trigger another wave of active fund outflows, even after foreign investors had sold around $6 billion worth of Indonesian equities between January and October.

Combining potential passive and active selling, the brokerage estimated foreign outflows of between $4.3 billion and $13.1 billion, with $7.5 billion in its base-case scenario.

By comparison, every 1-percentage-point increase in domestic institutional investors’ allocation to equities could generate approximately $1.1 billion in additional buying, BRIDS said.

The brokerage said the coming weeks would be critical in determining whether depressed valuations and attractive dividend yields could help establish a floor for the market. It lowered its end-2026 JCI target to 6,000 from 7,200, while setting a potential end-2027 level of 7,600.

State investment plans

Potential investment by Danantara, Indonesia’s sovereign investment agency, could provide additional support, particularly for shares of state-owned enterprises (SOEs), according to Pilarmas.

Consistent buying, combined with improving corporate performance, could strengthen sentiment toward listed state-owned companies. Investors are particularly interested in SOEs trading at attractive valuations with solid long-term business prospects.

However, Pilarmas cautioned that the sustainability of any rally would depend on the actual realization of investments and improvements in corporate fundamentals.

Monetary policy also remains a consideration for investors. Bank Indonesia has maintained its benchmark BI-Rate at 5.75% and its lending facility rate at 6.50%, while the deposit facility rate stands at 5.00%. The rate configuration keeps money-market rates relatively firm as the central bank remains prepared to adjust policy to support the rupiah.

Geopolitical uncertainty added another layer of risk. Reports that the United States and Israel could launch further attacks against Iran after next month’s US midterm elections heightened concerns over renewed instability in the Middle East.

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