The MSCI Indonesia downgrade proposal would move the country from emerging market to standalone market status, the index provider said on Thursday after launching a consultation.

MSCI said it will announce its final decision by the end of June 2027. It may issue an interim update on market participant feedback during the consultation.

Indonesia’s Jakarta Composite Index fell 11% on Friday after the announcement, according to Business Today. The benchmark is down about 39% so far in 2026, according to Kotak Neo.

What MSCI said

MSCI said it considers Indonesia’s continued classification as an emerging market “no longer appropriate”. It expects to proceed with the reclassification unless the consultation shows clear evidence of material improvements in market governance and functioning.

The index provider said feedback from market participants suggested a move to frontier market status would not properly reflect the depth of the problems.

MSCI also said it will keep in place an existing freeze on certain index changes for Indonesian securities until further notice.

Under the freeze, MSCI will not raise Foreign Inclusion Factors or Number of Shares, add stocks to the MSCI Indonesia Investable Market Index, or move stocks to larger size-segment indexes.

Concerns over investability

The proposal follows MSCI’s June 2026 Market Classification Review. In that review, market participants raised significant concerns about whether Indonesian stocks can be freely and easily traded by foreign investors.

MSCI cited persistent opacity in shareholding structures and suspected coordinated trading behavior.

Indonesian authorities have announced reforms. These include enhanced disclosure of shareholders with stakes above 1%, more granular investor classification disclosure, High Shareholding Concentration reporting, and a roadmap to a minimum free float requirement of 15%.

Free float is the share of a company’s stock available for public trading.

MSCI said institutional investors have stressed the need for consistent implementation and evidence of sustained, material impact from the reforms.

In June, MSCI said it would consider a consultation if sufficient progress was not evident by its November 2026 index review. It said market participants have since told it that progress has not been seen consistently.

MSCI said significant concerns remain about market dysfunction, including continued suspected coordinated trading and a lack of evidence of meaningful enforcement.

Exchange seeks clarification

The Indonesia Stock Exchange (IDX) said it will seek clarification from MSCI on its proposal. IDX President Director Jeffrey Hendrik said the announcement is part of a consultation process.

He said IDX respects MSCI’s independence in determining market classifications under its methodology.

The exchange said feedback to MSCI is open until April 30, 2027.

What standalone status means

MSCI places markets in emerging, frontier or standalone categories. Standalone market indexes are not included in the MSCI Emerging Markets Index or the MSCI Frontier Markets Index, according to a note in an OCBC research report.

Fath Aliansyah Budiman, head of investment specialist at Maybank Sekuritas, said MSCI typically downgrades a market by one level, from emerging to frontier. He said a market is classified as standalone when it qualifies for neither category.

No Asia-Pacific country currently falls into the standalone category, according to data compiled by IDNFinancials. Standalone markets are currently found in the Europe, Middle East and Africa region and in the Americas.

Next steps

The consultation runs until April 30, 2027, and MSCI will announce its decision by the end of June 2027. Market participants can submit feedback to MSCI by email, and the consultation document is available on the MSCI website.

MSCI said it will weigh the feedback on whether Indonesia’s market governance reforms have produced material and sustained improvements. Until then, the freeze on Indonesian index changes stays in place.