JAKARTA - A number of Wall Street banks have adjusted their views on Indonesian stocks after Morgan Stanley Capital International (MSCI) issued a warning about the possibility of a downgrade in market classification.
Quoting Bloomberg, global financial institution Goldman Sachs cut Indonesia's stock market rating to underweight, stating that MSCI's concerns about the investability aspect could trigger outflows of more than US$13 billion if Indonesia's market status is downgraded.
Meanwhile, strategists at UBS AG downgraded their domestic stock rating to neutral.
"We expect continued passive selling and view this development as a drag on market performance," Goldman Sachs analysts, including Timothy Moe, wrote in a report.
In a worst-case scenario, if Indonesia loses its status as an emerging market, passive funds that follow the MSCI index are estimated to be able to sell shares of up to US$7.8 billion.
In addition, the outflow of funds of 5.6 billion US dollars also has the potential to exit if FTSE Russell revises the methodology of free float and the status of the Indonesian market.
Goldman Sachs analysts said that this pressure could hinder market performance in the near future and encourage continued selling from passive investors.
This condition, coupled with increasing market pressure and the potential for liquidity to decrease, is assessed to encourage long-term investors to rebalance their portfolios, in addition, this condition can also trigger speculative fund flows from hedge funds.
This cautious attitude emerged after MSCI decided to postpone a number of index changes, including the addition of new stocks, until regulators resolve the issue of concentrated ownership of shares in a handful of parties.
Concerns about free float have resurfaced because many investors consider the shares of large companies in Indonesia to have low liquidity and are controlled by certain groups.
MSCI stressed that its decision was based on fundamental issues related to investment feasibility as well as concerns about coordinated efforts that could affect stock price movements.
However, Citigroup analysts assessed that the freezing of the index by MSCI is temporary and can actually be used as an opportunity to accumulate quality stocks, especially in the banking, telecommunications, and commodities sectors.
Meanwhile, the JCI itself had fallen by 10 percent on Thursday, January 29, 2026, extending the weakening trend that had been going on for two consecutive days.
"We assess that pressure on the overall market is likely to continue until there is clarity on regulations and a review by MSCI," UBS analysts, including Sunil Tirumalai, wrote in a note dated January 28.
In addition to the MSCI factor, regulatory risks are also considered to have increased after the government conveyed that 28 companies whose business licenses were revoked could potentially be managed by the Danantara sovereign wealth fund.
Previously, the government also announced the revocation of the permits of a number of natural resources companies, including large gold mining companies, on the grounds of forest area violations.
The government has taken over part of the assets of nickel mines, coal, and oil palm plantations which are then managed by the state.
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