Jakarta. Index provider MSCI is mulling downgrading Indonesia to a “standalone” status, which groups countries with severely deteriorated market access.

MSCI had previously threatened to reclassify Indonesia from “emerging market” to a “frontier” one, following concerns over opaque ownership structures and suspected coordinated trading. Indonesian authorities have been pursuing market reforms since then, including enhanced disclosure of shareholders with ownership above 1% and a 15% minimum free float rule.

The reforms, however, failed to convince market participants, according to MSCI, citing market dysfunction and continued coordinated trading. MSCI is now weighing launching a consultation on the standalone market downgrade unless Jakarta shows meaningful progress by the November review.

“Feedback from market participants suggests that a reclassification to ‘frontier markets’ would not properly recognize the depth of the market problems,” an MSCI statement published on Friday reads. 

The American finance firm intends to reconsider the plan if the consultation shows “clear evidence of material improvements in market governance and functioning”.

The current freeze on certain index-related changes for Indonesian securities remains in effect until further notice. MSCI will not implement increases to foreign inclusion factors or number of shares. 

“MSCI will continue to delete securities identified by the Indonesian authorities under the HSC [high shareholding concentration] framework and to use the 1% shareholder disclosure data to adjust free float estimate.” 

Market participants may submit their feedback until April 30, 2027. The final decision is slated to be out by the end of June.

The Indonesia Stock Exchange (IDX) said it would “respect MSCI’s independence in conducting its assessments and classifications based on its methodology”.

“In light of the various advancements and reform measures, the IDX intends to seek further clarification from MSCI regarding the rationale and assessments that underpin the announcement,” the bourse wrote in response to the latest threat. 

The Jakarta Composite Index (JCI) has been under downward pressure throughout the year.

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