SINGAPORE, June 19 (Reuters) - Index provider MSCI is due to
announce a decision on Indonesia's emerging markets status on
Tuesday in a highly anticipated report that could provide a lift
to an under-pressure market or deal yet another blow to
Southeast Asia's biggest economy.
MSCI in January flagged transparency concerns and warned of
a potential downgrade to frontier status - a risk that sent
equities tumbling. In a review late on Thursday, MSCI raised
further concerns about Indonesia's investability.
Here's what to watch in Tuesday's report:
WHAT HAPPENS IF INDONESIA IS DOWNGRADED?
Investors see a downgrade as unlikely, but if it happens it
would force selling from passive funds that track MSCI's popular
benchmark indexes, as well as any funds where mandates restrict
them from owning frontier market stocks.
It would also likely push active managers to reduce
Indonesia exposure to reflect the benchmark index.
In all, outflows could amount to as much as $13 billion,
Goldman Sachs estimates. An MSCI downgrade would also spur other
index providers including FTSE Russell to act. FTSE kept
Indonesia's emerging markets status in April but a review is due
in June.
WHAT ELSE IS AT STAKE?
Attention will also be on whether MSCI retains a freeze on
Indonesian stocks in its products.
The freeze, announced in January, means no new Indonesian
stocks were added to MSCI's indexes, and six were removed in May
- driving passive money out of Indonesian equities.
Most analysts expect MSCI to extend its freeze while it
reviews Indonesia's responses to its concerns.
ARE INDONESIA'S TROUBLES OVER AFTER NEXT WEEK?
Not necessarily. An affirmation of emerging market status
would likely only provide relief if the risk of a downgrade is
also taken off the table.
That is viewed as unlikely with the one-time market darling
still facing several headwinds.
The core issue of opacity in stock ownership data and
concerns over global investors' ability to assess the true free
float of companies in Indonesia is unresolved, and unpredictable
policymaking has investors and credit rating agencies nervous.
Indonesian shares are down 29% in 2026, making them
the world's worst performing stock market, while bonds have come
under pressure from foreign selling following credit outlook
downgrades by Moody's and Fitch.