Indonesia Stocks Face Fragile Sentiment After MSCI Warning and Market Rout

Indonesia stocks are set for a cautious start as investor sentiment remains fragile following a sharp market selloff triggered by concerns raised by MSCI. The Jakarta Composite Index suffered its steepest two-day decline since April, plunging more than 8% over Wednesday and Thursday, wiping out over $80 billion in market value and rattling confidence in Southeast Asia’s largest economy.

The selloff followed MSCI’s warning about ownership concentration and trading transparency in Indonesian equities. The index provider cautioned that Indonesia risks being downgraded to frontier market status if structural issues are not addressed. This announcement intensified existing concerns among global investors, who have already been wary of policy direction under President Prabowo Subianto.

Currency markets reflected the unease, with the Indonesian rupiah hovering near record lows after touching 16,985 per U.S. dollar last week. Persistent foreign capital outflows have added pressure, driven by worries over a widening fiscal deficit and increased state involvement in financial markets. Investor confidence was further shaken by political developments, including the recent appointment of President Prabowo’s nephew, Thomas Djiwandono, to the central bank, following last year’s abrupt removal of former finance minister Sri Mulyani Indrawati, long viewed as a pillar of fiscal credibility.

In response, Indonesian authorities announced a series of measures aimed at addressing MSCI’s concerns and stabilizing the stock market. These include plans to double the minimum free float requirement for listed companies to 15% and enhanced scrutiny of shareholder affiliations, even for stakes below 5%. Regulators said discussions with MSCI have been constructive so far and expressed hope that the proposed reforms could be implemented quickly, potentially resolving the issue by March.

While the policy response has helped ease some immediate fears, analysts caution that confidence remains delicate. Foreign investors sold approximately $645 million worth of Indonesian stocks during the two-day rout, bringing total net outflows to around $1 billion so far in 2025. Market participants broadly agree that restoring transparency and policy credibility will be critical to preventing further systemic outflows and supporting Indonesia’s long-term market outlook.