Mirae Asset: Up to USD11 Billion in Potential Foreign Fund Outflows Loom Over Indonesia’s Stock Market

PT Mirae Asset Sekuritas Indonesia believes pressure on the domestic stock market could persist amid uncertainty surrounding Indonesia’s status in the Morgan Stanley Capital International (MSCI) indexes. The risk of Indonesia being reclassified as a Standalone Market could affect foreign capital flows, stock price movements, and market valuations in the coming months.

On Tuesday (November 3), the Jakarta Composite Index (JCI) fell 3.78% to 4,904. Selling pressure was broad-based, with 624 stocks declining and only 57 advancing. Foreign investors also recorded a net sell of IDR 760 billion, primarily in BBRI, ANTM, and BUMI shares. The selling pressure highlights the fragility of investor confidence, despite improvements in several domestic economic indicators, including a September trade surplus of USD 3.36 billion and an increase in the manufacturing Purchasing Managers’ Index (PMI) to 54.0 in October.

Wilbert Arifin, Research Analyst at Mirae Asset Sekuritas Indonesia, considers Indonesia’s reclassification to Standalone Market the base-case scenario. This assessment takes into account MSCI’s explicitly stated default position, progress in law enforcement against coordinated trading practices—which remains behind that of Turkey—and historical precedents showing that 10 out of 12 MSCI consultations on potential market downgrades over the past two decades ultimately resulted in reclassification.

According to Wilbert, law enforcement against coordinated trading practices is one of the most critical factors shaping Indonesia’s future status in the MSCI indexes. “Law enforcement must be carried out on a broad and comprehensive scale. Progress in addressing these practices, as well as their impact on market conditions, will be important factors to monitor when assessing the likelihood of a change in MSCI’s decision,” he explained.

A potential reclassification of Indonesia to Standalone Market could put approximately USD 8–11 billion in foreign funds at risk, including around USD 3 billion in potential forced passive outflows. This risk is primarily concentrated in nine stocks classified under the MSCI Standard Index.

Based on historical precedents involving markets that have been downgraded, Mirae Asset estimates that the market could face a further decline of approximately 20% in US dollar terms ahead of MSCI’s decision in June 2027. However, this projection is based on historical experience, with the magnitude of declines varying across countries.

From a valuation perspective, the JCI currently trades at a forward price-to-earnings (P/E) ratio of approximately 7.3 times and a price-to-book value (P/BV) ratio of 1.36 times. Wilbert believes this decline in valuation primarily reflects a de-rating driven by capital outflows. Nevertheless, potential downward revisions to corporate earnings estimates should also be monitored, particularly for large-cap banking stocks with relatively high earnings growth expectations.

“Investors can adopt a wait-and-see strategy while maintaining liquidity, temporarily holding cash, and beginning to monitor stocks with relatively low foreign investor exposure and high dividend potential,” Wilbert explained.

Mirae Asset believes investors should closely monitor developments in MSCI policies, rupiah stability, and the direction of foreign capital flows when determining their investment strategies. Amid ongoing uncertainty, a selective approach that takes into account each issuer’s fundamentals, liquidity, and valuation remains an important consideration.