(Bloomberg) -- Indonesia faces a potential ejection from global stock indexes after MSCI Inc. said the country no longer merits emerging-market status, escalating the threat of foreign investor flight as concerns deepen over market integrity.
The index provider is consulting on a proposal to reclassify Indonesia as a standalone market, saying a downgrade to frontier status would not adequately reflect the severity of the country’s market problems. MSCI expects to proceed with the change unless it finds clear evidence of material improvements in market governance and functioning.
Despite reforms announced by Indonesian authorities, “significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and lack of evidence of meaningful enforcement,” MSCI said in a statement Thursday.
Standalone status is reserved for markets that don’t meet MSCI’s criteria for inclusion in either its emerging- or frontier-market indexes. Argentina, Lebanon and Palestine are among the markets with the designation, with none in Asia. For Southeast Asia’s largest economy, the proposed reclassification would mark a major setback in its efforts to attract global investment.
The move threatens to deepen pressure on a market already reeling from concerns over its investability. MSCI warned in January of a potential downgrade to frontier status, triggering a historic rout. Indonesia’s benchmark stock index has fallen about 32% in 2026, making it the worst performer among global peers.