Goldman Sachs cuts rating on Indonesian equities after MSCI flags investability risk

[SINGAPORE] Goldman Sachs cut its rating on Indonesian equities on Thursday and said a potential outflow in billions of dollars could be on the cards after MSCI flagged transparency problems and warned it could be downgraded to frontier market status.

MSCI’s statement and its decision to freeze its updates on Indonesian securities sent the benchmark Jakarta Composite Index tumbling 7.4 per cent on Wednesday.

“We expect the market to remain under pressure and do not view this as an entry point,” Goldman strategists said as they lowered their rating on Indonesian equities to ‘underweight’ from ‘market weight’.

In a separate research note, the strategists said they expect roughly US$2.2 billion in passive outflows based on reductions in free floats, adding they considered this a relatively benign scenario.

In an extreme scenario of a full downgrade to frontier market, which they thought unlikely, outflows could reach US$7.8 billion, they added.

MSCI’s warning is the latest setback to South-east Asia’s biggest economy as it grapples with stubborn foreign outflows, a weak currency and investor angst over a widening fiscal deficit and central bank autonomy.

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Overseas investors sold 13.96 trillion rupiah (S$1.05 billion) worth of Indonesian shares in 2025, the worst year for outflows since 2020, with the sell-off continuing in January, data compiled by LSEG showed.

The Indonesian government is expected to hold a meeting soon regarding the MSCI matter, senior economic minister Airlangga Hartarto said on Wednesday.

Rahul Ghosh, portfolio specialist at T. Rowe Price in Singapore, said the warning by MSCI and any future action, could have broader negative impact on the economy if it makes capital raising more difficult or just more costly via higher risk premiums. REUTERS