Indonesia's stock market just experienced its worst day in nearly 30 years after MSCI, a major global index provider, signaled that Indonesia no longer fits within the Emerging Market category.
Meanwhile, Thai analysts believe that some capital exiting Indonesia might flow into the Thai stock market. Thairath Money has summarized which stocks might be most affected and to what extent.
On Friday, 16 Oct, MSCI announced that continuing to classify Indonesia as an emerging market is inappropriate and proposed downgrading it to a "Standalone Market," which would remove Indonesian stocks from the global index widely referenced by funds worldwide.
Reuters reported this move as unexpected and more severe than the previously warned "Frontier" status. If downgraded, Indonesia would join countries like Argentina, Lebanon, Palestine, and Ukraine, despite being considered an emerging market by MSCI since 1989.
The main cause is "market mechanism defects" that have accumulated since early 2026. In January, MSCI froze Indonesia's index adjustments due to opaque shareholder structures and irregular trading behavior.
Although Indonesian authorities attempted to address issues, such as increasing the free float share ratio, MSCI judged the progress insufficient, surprising the market with a harsher proposal than expected.
This led to a strong investor reaction. The Jakarta Stock Exchange index closed Friday down 11.6%, leaving the year-to-date loss around 40%, making it the worst-performing market globally. Selling pressure continued Monday morning, 19 Oct, with a further 5% drop to a six-year low.
Recently, the Indonesia Stock Exchange reduced the daily maximum price drop limit (Auto Rejection) from 15% to 7% to give investors more time to assess information.
However, it should be emphasized that this is still only a "proposal." MSCI is gathering market feedback and will finalize its decision around the end of June 2027. If Indonesia demonstrates tangible improvements in governance and market operations, the outcome could change.
Asia Plus Securities research explains that if MSCI removes Indonesia, funds tracking the MSCI EM index will need to reduce or sell Indonesian stocks.
Currently, Indonesia accounts for about 0.4% weight in MSCI EM, heavily concentrated (71.7%) in banking and finance sectors. These funds would be reallocated to other emerging markets, including Thailand, which holds a 0.9% weight, potentially attracting inflows.
Therefore, capital is likely to flow particularly into large, liquid stocks such as DELTA, ADVANC, PTT, GULF, CPALL, AOT, PTTEP, BDMS, and commercial banks, sectors where Indonesia has significant exposure, so some funds might shift to Thai banks.
Another supporting factor is Thailand's own market fundamentals, with net foreign inflows of about $514 million this year amid heavy selling in other Asian markets. The Thai index has returned +24.9% this year, outperforming developed markets like Nasdaq (+11.6%) and S&P 500 (+11.1%).
The main reasons include a market structure with about one-third energy and petrochemical stocks benefiting from a 77.4% rise in Brent crude prices this year, along with a reputation as a safe haven amid technology stock volatility caused by geopolitical tensions.
Krungsri Securities estimates that, assuming passive funds total $650 billion, about $3.25 billion would be reallocated due to Indonesia's removal. Thailand might receive only around $33 million of passive inflows, less than 1% of this amount.
Hence, the main opportunity lies in "Active Fund Rotation," where actively managed funds switch portfolios to large-cap Thai stocks like ADVANC, PTT, GULF, DELTA, KTB, and KBANK, which are prime targets for fund flows.
Sources: Reuters, CNBC, Asia Plus, KSS
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