Global index provider Morgan Stanley Capital International (MSCI) has maintained Indonesia’s position in the Emerging Market group, according to the results of its 2026 Global Market Accessibility Review, released early on Friday morning, the 19th of June, Jakarta time.
MSCI is a global index provider that serves as a benchmark for many passive investment funds worldwide. As a result, the Indonesian capital market has avoided a downgrade to Frontier Market status.
Hans Kwee, Co-Founder of PasarDana and a capital market practitioner, believes MSCI’s decision is in line with the country’s relatively strong economic and stock market fundamentals. He noted that MSCI has its own methodology for determining the weighting of countries and stocks in its indices. Therefore, changes in a country’s position within the index do not necessarily reflect changes in its economic fundamentals.
“MSCI is an index provider. They serve as a reference for many passive funds. Passive funds invest in a country based on the index. So, they don’t 100% look at the fundamental aspects, but they rely on the index provider,” Kwee recently told the press.
If Indonesia’s position in the index were to decline, the impact would primarily be a reduction in its weighting, potentially affecting the allocation of funds by investors who track the MSCI index. However, this does not necessarily indicate that the country’s economic fundamentals or the performance of Indonesian companies are deteriorating.
“So, if we are under downward pressure, that means there is a potential for our weighting to decrease. It should be noted that our fundamentals have not changed; it’s just a technicality of the index’s calculation methodology that causes this,” Kwee continued.
Nevertheless, Kwee has been confident from the outset that Indonesia’s position would not be downgraded within the MSCI index.
“Why do I say we won’t be relegated to Frontier Market? First, because of our economic size and market size. All existing conditions indicate that Indonesia will remain in the Emerging Market category,” he concluded.
In terms of openness to foreign ownership, MSCI awarded Indonesia its highest rating, “++”, for several indicators, including investor requirements, foreign ownership limits (FOL), and the availability of foreign exchange facilities. This rating places Indonesia on par with South Korea, Malaysia, Thailand, South Africa, Turkey, and the United Arab Emirates.
However, MSCI also identified several areas requiring improvement. One of its primary concerns remains information transparency in the Indonesian capital market. In the Information Flow indicator, Indonesia’s rating declined from “+” to “-“. This assessment suggests that obstacles to the accessibility and availability of information for global investors persist.