Jakarta. Indonesia's stock market is unlikely to reclaim the 7,000 level this year after one of the world's worst equity selloffs wiped out about $360 billion in value. 

Market analysts are saying restoring investor trust — rather than sustaining economic growth — has become the defining challenge for Southeast Asia's largest economy.

The benchmark Jakarta Composite Index (JCI), which surged to a record 9,134 in January, has since plunged about 34% to around 5,744, erasing roughly Rp 6.5 quadrillion ($360 billion) in market capitalization and costing Indonesia its position as Southeast Asia's largest stock market to Singapore.

The collapse came despite an economy still expanding by more than 5%, highlighting a shift in how global investors assess emerging markets. Strong macroeconomic fundamentals are no longer enough when concerns persist over market governance, regulatory credibility and transparency.

"Capital now prioritizes certainty, credibility and long-term resilience," Financial Services Authority (OJK) Chief Executive Hasan Fawzi said at the 25th anniversary celebration of Investor Daily at the Indonesia Stock Exchange this week.

"Investors are placing greater emphasis on governance, market integrity, transparency, regulatory certainty and institutional credibility."

Foreign investors have sold more than Rp 70 trillion ($3.88 billion) of Indonesian equities this year after MSCI froze its index rebalancing for Indonesia in January, citing concerns over free-float transparency, concentrated ownership and suspected coordinated trading.

The MSCI decision triggered one of the sharpest corrections in the JCI's history and eventually led to the resignation of then-Indonesia Stock Exchange President Director Iman Rachman. The benchmark, which briefly ranked among Asia's best-performing equity indexes early this year, quickly became one of the region's weakest.

Market Reforms Buy Time
Authorities have since launched an ambitious reform agenda aimed at rebuilding investor confidence.

The OJK and the Indonesia Stock Exchange now require monthly disclosure of shareholders owning more than 1% of listed companies, while the minimum free-float requirement for new listings has doubled to 15% from 7.5%. Regulators have also introduced broader market-integrity measures designed to improve liquidity, transparency and price discovery.

The reforms helped Indonesia avoid a more severe setback. In its latest market classification review, MSCI retained Indonesia's emerging-market status, easing fears of an immediate downgrade to frontier-market status.

MSCI gave Indonesian authorities until November to demonstrate meaningful progress in addressing coordinated trading, concentrated ownership and market transparency. Failure would not automatically trigger a downgrade but could place Indonesia on the index provider's consultation list, prolonging uncertainty for global investors.

7,000 Unlikely This Year
That uncertainty is likely to limit any market rebound this year, according to Muhammad Wafi, head of research at Korea Investment & Sekuritas Indonesia.

He expects the JCI to end 2026 between 6,000 and 6,500 under his base-case scenario, saying a return to the psychologically important 7,000 level is more likely in 2027.

Reaching 7,000 this year would require several catalysts to align simultaneously, including MSCI affirming Indonesia's emerging-market status without further review, the rupiah strengthening toward Rp 16,500 per US dollar, and a sustained return of foreign capital.

"The reforms must be implemented consistently, not just exist on paper," Wafi said. "Foreign investors want proof that disclosure rules and free-float requirements are being enforced, together with stronger action against coordinated trading and clear communication from regulators ahead of MSCI's November review."

Nafan Aji, senior market analyst at Mirae Asset Sekuritas Indonesia, projects the JCI could climb to 7,246 under a bullish scenario but warns it could fall as low as 5,068 if foreign outflows continue, fiscal concerns intensify and global risks remain.

Nafan expects the second half to be more stable than the first, supported by resilient corporate earnings, potential rupiah stabilization if inflation remains contained, and the gradual implementation of market reforms.

Still, significant risks remain. Persistent US dollar strength, uncertainty over Federal Reserve policy and geopolitical tensions in the Middle East continue to weigh on appetite for emerging-market assets.

Domestically, investors are closely watching whether the government can maintain fiscal discipline while financing ambitious spending programs and provide greater clarity on state intervention in strategic sectors.

"If fiscal pressures widen, rising government bond yields could encourage investors to shift funds away from equities," he said.