Indonesia after the MSCI shock

 

Markets often rise sharply, leaving investors worried that they have missed the rally. When prices fall, it can be tempting to see the correction as a buying opportunity. But lower prices alone do not make an investment attractive; the reasons behind the fall matter too.

Indonesia is a good example. Before tensions between the US and Iran escalated, the Indonesian stock market was near its peak. Higher energy prices then added pressure, as they have in many emerging markets. The market faced another shock after MSCI’s announcement, with the IDX Composite falling around 11% in one session. Reports described this as its sharpest one-day fall since 1998.

 

 

What MSCI said

 

• It is a proposal, not a completed downgrade. But MSCI says it expects to proceed unless the consultation shows clear evidence of material improvements in market governance and functioning.
• Timeline: feedback is open until 30 April 2027, and the final decision will come on or before 30 June 2027.
• Concerns: opaque shareholding and ownership, suspected coordinated trading, and weak enforcement of market rules.
• The existing freeze on Indonesian securities in MSCI indexes stays in place until further notice.
• Severity: MSCI said a move to Frontier Market status would not fully reflect the depth of the problems, which is why it proposed Standalone.

 

Foreign investors have been net sellers of Indonesian equities this year, with outflows of about US$4.9 billion to 15 October, according to OCBC Research. A Standalone classification could force funds that track MSCI’s emerging-market indexes to sell their Indonesian holdings.

 

 

 

 

Indonesia’s Economy and Population

 

Indonesia’s economy has been growing at a steady pace, and its population of more than 285 million creates a large domestic market. However, a large population and economic growth do not automatically lead to strong stock-market returns. Income growth, productivity, formal employment, infrastructure and companies’ ability to turn demand into profits will also matter.

Investment themes and potential opportunities

 

A. Domestic Consumption and Financial Services

 

Indonesia’s large population supports demand for everyday goods and services, including food, household products, transport, telecom, digital payments, housing and loans. Banks also make up a large part of the listed stock market. As of 30 September 2026, major banks accounted for a significant share of the MSCI Indonesia large- and mid-cap index. This means the index may be less diversified than Indonesia’s overall economy.

 

B. Nickel, Copper and Mineral Processing

 

Indonesia is an important supplier of metals used in batteries and industry. According to the US Geological Survey (USGS), Indonesia produced about 62% of the world’s mined nickel in 2024. It was also the world’s second-largest producer of mined tin and cobalt. Its copper mine production was around 1.0 million tonnes in 2024. Demand for copper could benefit from investment in power grids, electrification, renewable energy and data centres.

 

 

Commodity prices can rise and fall sharply. Nickel prices may be affected by oversupply, policy changes and changes in battery technology. Copper businesses can be affected by mine disruptions, prices, permits and processing costs. Having large mineral reserves does not guarantee that every mining company will be profitable.

 

C. Data Centres, Connectivity and Digital Infrastructure

 

Indonesia’s growing digital economy and large number of internet users could support demand for cloud services, connectivity and data centres. A World Bank report estimated that operating data-centre capacity was about 333 MW in mid-2025 and around 456 MW by the end of 2025. The government’s target cited in the report was 2,000 MW by 2029. This points to room for growth, but projects will depend on reliable electricity, fibre connections, water, permits and funding.

 

 

 

 

Valuations: Are Indonesian Stocks Cheap?

 

As of 30 September 2026, MSCI’s Indonesia Index had a trailing P/E of 9.9x, a forward P/E of 8.6x, a price-to-book ratio of 1.57x and a dividend yield of 8.29%. These figures suggest that Indonesian stocks were relatively inexpensive before the recent sell-off. They do not reflect the latest market decline, so valuations should be updated using current index levels and earnings estimates.

 

 

 

A low P/E ratio can mean that stocks are attractively priced, but it can also reflect concerns about future earnings, governance, liquidity, government influence, commodity prices or the currency. Dividend yields can change and are not guaranteed.

 

 

Conclusion and Recommendation

 

Indonesia has a promising long-term story, supported by its large domestic market, natural resources and growing digital infrastructure. The recent market fall may create opportunities, but concerns about transparency, governance and market access remain. A price correction by itself is not enough to make the market a good investment.

 

Recommendation: Keep Indonesia on the watchlist as a possible small allocation within a diversified portfolio. Avoid making a large investment simply because prices have fallen. Before investing, update valuations and earnings estimate after the October sell-off, check the available investment route and tax implications, and monitor whether Indonesia makes progress on MSCI’s concerns about transparency and market access.

 

 

Written by Neeru Seal |Partner

 

Alpha Research

 

Disclaimer: The information in this document is provided for informational purposes only. It does not constitute an offer, recommendation, or investment advice. The views expressed are those of the Alpha Capital Research team and are based on current market conditions and information available publicly.