Global index provider MSCI has postponed its final decision on Indonesia’s equity market status to June, extending its review of reforms introduced by local authorities to address concerns over transparency and market accessibility. 

As reported by Reuters, the decision follows a January warning that raised the possibility of Indonesia being downgraded from emerging market to frontier market status. The warning triggered a market sell-off and foreign investor outflows. Indonesia’s benchmark stock index has fallen around 12 percent this year, while net foreign selling reached approximately USD 2.3 billion. 

In its latest statement, MSCI said it is continuing to assess reforms implemented by the Financial Services Authority (OJK), Indonesia Stock Exchange (IDX), and Indonesia Central Securities Depository (KSEI). These measures include expanded shareholder disclosure requirements, more detailed investor classification, the introduction of a High Shareholding Concentration (HSC) framework, and a plan to increase the minimum free float requirement to 15 percent. 

“MSCI is assessing the scope, consistency and effectiveness of the new data sources and measures,” the firm stated, as quoted by The Jakarta Post, particularly in relation to free float determination and overall market accessibility. 

Despite acknowledging these reforms, MSCI has maintained existing restrictions on Indonesian equities. As reported by Reuters, the firm will continue to freeze increases in foreign inclusion factors and will not add Indonesian stocks to its indexes or allow upgrades across size segments. It also stated that it would not incorporate the newly introduced data into its index calculations until the review is completed and feedback from market participants has been evaluated. 

The extension of the review has had a limited impact on the domestic market. The Jakarta Post reported that the IDX Composite Index declined 0.46 percent to close at 7,559 on Tuesday, while other major Asian markets recorded gains.  

According to BRI Danareksa Sekuritas analyst Abida Massi Armand, the market reaction was relatively contained. “The index as a whole is relatively held up, which indicates that the negative sentiment has been largely priced in beforehand,” she said. 

Market participants expect the review process to continue through June. As quoted by Reuters, SGMC Capital fund manager Mohit Mirpuri said MSCI’s latest move reflects a “measured, wait-and-see approach,” adding that June will be a key point for further developments. 

Indonesian authorities have indicated that engagement with MSCI will continue. Acting IDX president director Jeffrey Hendrik said the exchange would maintain communication with index providers and global investors. “ 

We will keep communicating with index providers… and gather input for reinforcement of the capital market going forward,” he said, as reported by The Jakarta Post. 

MSCI is expected to provide further updates in its Market Accessibility Review scheduled for publication in June, which will determine how the reforms are reflected in its assessment of Indonesia’s equity market.