Invesco: Indonesian stock market volatility is expected to continue, with a greater preference for North Asian stock markets

K-LinePoet · 2026-02-03T02:11:56+00:00

Due to MSCI considering downgrading the Indonesian market, its stock market declined. Zhao Yaoting pointed out that market volatility will continue, and valuations are still not cheap. If transparency is not improved, MSCI may downgrade its market status, potentially triggering capital outflows. The outlook for North Asian stock markets is more optimistic in the future.

K-LinePoet

2026-02-03 02:11:56

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Invesco Asia Pacific Global Market Strategist Zhao Yaoting pointed out that due to MSCI considering downgrading Indonesia from “Emerging Market” to “Frontier Market,” the Indonesian stock market has recently experienced a noticeable decline. Before the Indonesian regulatory authorities respond and MSCI makes a final decision in May this year, market volatility in Indonesia is expected to continue. He stated that even after the stock price decline, Indonesia’s market valuation still cannot be considered cheap. The relevant index’s expected price-to-earnings ratio is close to 11 times, while this year’s earnings per share (EPS) are only expected to grow by 8% to 10% year-on-year. Looking ahead to the next year, he prefers North Asian markets due to their more stable macro environment, ongoing expansion of artificial intelligence-related investments, and fiscal policies driving re-inflation.

MSCI recently completed its review of the Indonesian stock market and expressed concerns about the exchange’s disclosure rules, believing that current regulations may allow opaque ownership structures and highly concentrated shareholdings. This indicates MSCI’s concern that limited liquidity in many stocks could lead to improper trading and inflated valuations. MSCI stated it will suspend some of the planned index adjustments. If Indonesia does not make substantial progress in improving market transparency before May this year, MSCI will reassess Indonesia’s investability status.

Possible actions by MSCI include: 1) lowering Indonesia’s weight in the Emerging Markets index; 2) downgrading Indonesia from an emerging market to a frontier market. In the worst-case scenario, if these measures are implemented, the estimated free float market capitalization of the MSCI Indonesia Index in the standard index could decrease by approximately $32 billion, and the small-cap index could decrease by about $10 billion, for a total reduction of approximately 27%. If these adjustments are ultimately carried out, they could trigger significant passive fund outflows.

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