Navigating MSCI Risks: Investors Need to Balance Liquidity and Investment Opportunities

PT Mirae Asset Sekuritas Indonesia believes that uncertainty surrounding the proposed reclassification of Indonesia’s stock market by MSCI to Standalone Market status is prompting investors to adopt a more selective approach to portfolio management. The decline in the Jakarta Composite Index (JCI) increases the risk of a decrease in the net asset value (NAV) of equity mutual funds, amid potential shifts in institutional investor fund flows.

Novani Karina Saputri, Research Analyst at PT Mirae Asset Sekuritas Indonesia, said investors should pay close attention to issuers’ fundamentals, liquidity, and portfolio concentration. Although large-cap and highly liquid stocks remain vulnerable to foreign selling pressure, low foreign ownership does not automatically provide protection, particularly when free float is limited and ownership is concentrated.

“If stock prices decline while a company’s business outlook remains relatively unchanged, the underlying fundamentals of an equity mutual fund portfolio may still be sound. However, MSCI-related risks could continue to weigh on valuations through the potential reduction in investor demand,” Novani said.

Investors can assess the earnings outlook, cash flow, and debt repayment capacity of the issuers held in their portfolios. Liquidity risk should also be monitored by examining cash allocations, redemption trends, and the size of a mutual fund’s holdings relative to the daily trading value of the underlying stocks. A decline in assets under management (AUM) does not necessarily indicate fund outflows, as it may also reflect asset price corrections.

According to Novani, signs of market stabilization should be assessed through several indicators, including easing volatility, a sustained reduction in foreign selling pressure, rupiah stabilization, resilient corporate earnings prospects, and progress in capital market reforms. A one-day rebound is not sufficient to confirm that market conditions have stabilized.

Mirae Asset Sekuritas Indonesia maintains a balanced selective risk-taking approach, with money market mutual funds as one instrument for maintaining liquidity and selective additions to equity mutual funds as market conditions evolve.

Money market mutual funds invest in money market instruments and short-term debt securities, meaning they have no direct exposure to stock price corrections. Nevertheless, investors should still consider credit quality, diversification, and redemption terms. Every investment decision should be aligned with individual financial goals, investment horizons, and risk tolerance.

Francisca Gerungan, Head of Fund Services at PT Mirae Asset Sekuritas Indonesia, said investors should evaluate their portfolio allocations based on their risk profiles, financial goals, and investment horizons. Changes in market conditions may affect the time required to achieve financial goals, making it important to consider liquidity needs and risk-bearing capacity together.

Money market mutual funds may be considered for funds that need to remain accessible over a relatively short period. Meanwhile, fixed-income mutual funds with short- to medium-duration bonds may offer an alternative for diversification among investors with longer investment horizons. Both instruments have distinct characteristics and risks that investors should understand before making decisions.

“Investors should consider their investment objectives, time horizons, and risk profiles before selecting an instrument. For emergency funds, for example, liquidity is an important consideration. For medium-term needs, investors may consider diversification in line with their risk profiles and review their portfolios regularly,” Francisca explained.

In addition to historical performance, Francisca recommends that investors review mutual fund fact sheets to understand investment strategies and policies, asset allocations, the top 10 holdings, and product-specific risks. This information can help investors assess whether a mutual fund is suitable for their needs and financial goals.

The range of mutual fund products available on M-FUND can serve as a reference for investors seeking to understand different product characteristics before making investment decisions.