Indonesia could lose billions as MSCI threatens index exclusion

Indonesia could lose billions of dollars in foreign investment after MSCI proposed removing the country from its global stock market indexes. The move could force investment funds to sell Indonesian shares and make it harder for companies to raise money.

The warning has already shaken Indonesia’s markets. The country’s main stock index fell 11.6 per cent in one day, wiping around $65 billion off the value of its shares. It was the index’s biggest single-day fall since the Asian financial crisis in 1998. The Indonesian rupiah also fell as much as 0.8 per cent against the US dollar.

MSCI is a major provider of stock market indexes that help global investors decide where to put their money. More than $1.8 trillion in assets are linked to its emerging market indexes, according to the company’s website.

How much money could Indonesia lose?

Banks estimate that MSCI’s proposed move could trigger $3 billion to $6 billion in outflows from funds that track market indexes. JPMorgan puts the figure at $4.8 billion.

The impact could be larger if other investors also pull out. UBS has warned that active investment funds could withdraw another $15 billion.

The proposed exclusion is more severe than moving Indonesia from an emerging market to a frontier market. A frontier market is generally smaller and less accessible to global investors. If Indonesia is removed from both categories, funds that track these indexes would have no reason to keep holding its shares.

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Indonesia has been part of MSCI’s emerging market indexes since 1989. Losing that status could weaken its appeal to foreign investors.

Why is MSCI threatening to exclude Indonesia?

MSCI has raised concerns about unclear company ownership, suspected coordinated trading and weak enforcement of market rules.

These problems make it harder for investors to know how many company shares are actually available to buy and sell. They can also make it harder to trust market prices.

Indonesia has introduced tighter disclosure rules and plans to increase the minimum number of shares that companies must make available for public trading. The market regulator also announced sanctions linked to alleged manipulation in three stocks.

However, MSCI has said it expects the proposed exclusion to go ahead unless it sees clear evidence of improvement. Its consultation will run until April 2027, with a final decision expected by June 2027.

Indonesia’s deputy coordinating minister for economic affairs, Dradjad Hari Wibowo, said the country needed to take MSCI’s concerns seriously but added that the index provider could also be wrong.

Could the move hurt Indonesia’s wider economy?

The impact could go beyond the stock market. If foreign investors pull money out, the rupiah could face further pressure. A weaker currency can make imports more expensive, adding to costs for businesses and consumers.

The central bank could also face pressure to raise interest rates to support the currency and prevent money from leaving other parts of the financial system. Higher rates, however, can make loans more expensive for households and businesses.

Companies linked to the state could also find it harder or more expensive to raise money. That could force the government to provide more funds or delay planned investments.

Indonesia is Southeast Asia’s largest economy and a major exporter of coal, palm oil and nickel. But it also imports oil, making it vulnerable to higher energy costs.

Why is the proposed exclusion unusual?

If MSCI goes ahead, Indonesia would join a small group of standalone markets that includes Lebanon and Zimbabwe. These markets sit outside MSCI’s main emerging market and frontier market categories.

Argentina was removed from MSCI’s emerging market indexes in 2021 after imposing capital controls. Russia was removed in 2022 after Western sanctions following its invasion of Ukraine disrupted its access to global finance.

Indonesia’s case is different. MSCI’s concerns focus on how its stock market operates and whether investors can trust the information available to them.

Indonesia’s share of MSCI’s emerging market indexes has already fallen to 0.46 per cent from 1.2 per cent at the end of 2025, according to JPMorgan. Even so, exclusion could lead to significant selling because of the money linked to these indexes.

The final decision will depend on whether Indonesia can address MSCI’s concerns before the consultation ends. The outcome could affect how easily the country attracts foreign investment in the years ahead.

(With inputs from agencies.)