Massive Sell-Off on the Indonesia Stock Exchange Occurred after MSCI Issues a Stern Warning
In recent months, we already looked at the performance of benchmark stock index (the Jakarta Composite Index, or IHSG) with some suspicion. While foreign investors recorded a ‘net sell’ (meaning foreign investors sold more Indonesian stocks than they bought), the IHSG reached all-time highs from September 2025 to mid-January 2026. It was as if the IHSG had suddenly become immune to global conditions.
So, when we read that global index provider MSCI issued a warning on Tuesday 27 January 2026, while at the time also freezing all weight increases and new additions for Indonesian stocks in their indices, we felt like our suspicion had been justified.
MSCI, Goldman Sachs and UBS Concerned about Indonesia
MSCI cited concerns regarding market accessibility and transparency in Indonesia, specifically pointing to the unclear share ownership structures and suspected wash trading (an illegal strategy involving the same trader buying and selling the security to portray false market activity). MSCI hinted that if Indonesia fails to improve its transparency by May 2026, then it could be downgraded from an Emerging Market to a Frontier Market. This would be a big demotion in the eyes of the global financial world as it signals that Indonesia's stock market has become too opaque, illiquid, or difficult for international institutions to navigate. Global funds are then forced to sell their Indonesian shares (immediately). Goldman Sachs estimates that a downgrade could trigger between USD $7.8 billion and $13 billion in capital outflows as passive and active funds exit Southeast Asia’s largest economy.
MSCI is worried about the transparency and fairness of Indonesia’s stock market. Investors are concerned that share ownership is hidden (opaque) and that trading might be manipulated, making it hard to determine how many shares are actually available for the public to buy.
The next day, Wednesday 28 January 2026, a market crash occurred in Indonesia as global investors rushed to sell shares because the ‘Emerging Market label’ (a seal of approval for global investors) is at risk. The huge sell-off triggered a mandatory 30-minute trading halt to curb panic selling. Still, at the end of the trading day, the IHSG had contracted by a whopping 7.35 percent.
Selling intensified on the morning of Thursday (29 January 2026), with the index dropping as much as 10 percent intraday, triggering another mandatory 30-minute trading halt.
Making matters even worse, the MSCI warning triggered immediate downgrades from a number of global investment banks. Goldman Sachs cut Indonesian equities to ‘underweight’ (meaning: reduce your holdings), warning that a downgrade to the frontier status could trigger USD $13 billion in outflows. Moreover, wealth manager UBS downgraded Indonesia to ‘neutral’, citing regulatory uncertainty and a drag on performance until the May 2026 deadline. However, by the end of that trading day market sentiments improved as this crash also created an attractive entry point for investors. And so, it closed 1.06 percent in the red only on Friday (30 January 2026). Still, in 48 hours, the Indonesian stock market had wiped out around USD $80 billion in market value.
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