Indonesian Stock Performance on MSCI Index Drops

JAKARTA, KOMPAS - The global index provider, Morgan Stanley Capital International, has given a less favorable assessment of several publicly listed companies' stocks in the country. This assessment, which serves as a reference for foreign investors, indicates uncertainty regarding the liquidity of large-cap stocks domestically.

Infovesta Stock Analyst, Ekky Topan, when contacted by Kompas on Friday (21/2/2025), explained that Morgan Stanley Capital International (MSCI)'s assessment, which includes several Indonesian stocks in the Global Standard Index, refers to the preferences of foreign investors. MSCI's assessment also serves as one of the main references for global investment managers in determining their fund allocations in the domestic stock market.

"Stocks included in the MSCI tend to receive greater attention and have the potential to attract inflows (incoming funds) from foreign investors. Meanwhile, stocks that are removed risk experiencing further selling pressure," he stated.

In February 2025, MSCI adjusted the weighting of Indonesian stocks which will be determined in March 2025. They adjusted the stock weighting or rebalancing four times, namely in February, May, August, and November.

In the announcement at the beginning of 2025, three out of 20 shares owned by Indonesian issuers were removed from the MSCI Global Standards list. The shares in question are those of PT Indah Kiat Pulp & Paper Tbk (INKP) and PT Merdeka Copper Gold Tbk (MDKA), which were downgraded to the MSCI Small Cap Index, and PT Unilever Indonesia Tbk (UNVR).

MSCI will not add shares of other Indonesian companies to the list as in previous years. On February 11, 2025, MSCI announced that they are not considering large-cap conglomerate shares for inclusion in the list at the beginning of 2025.

The shares of the mentioned conglomerates include those of PT Petrindo Jaya Kreasi (CUAN), PT Barito Renewables Energy Tbk (BREN), and PT Petrosea Tbk (PTRO).

In 2024, the annual performance of stocks listed by MSCI Indonesia recorded -11.94 percent. In fact, since 2021, its performance has always grown positively. The annual performance in 2024 is also worse than the annual performance in the early year of the Covid-19 pandemic, 2020, which was -7.46 percent.

Typhoon reads that the movement of the MSCI Indonesia index which experienced a slowdown in growth after the pandemic, shows that the Indonesian stock market still faces major challenges. These challenges are both in terms of foreign capital flows and domestic sentiment.

The movement of foreign investor funds has a significant impact on the movement of the Composite Stock Price Index (IHSG). In 2024, foreigners recorded a net purchase of IDR 15.98 trillion in the stock market. However, the IHSG plunged 2.65 percent after foreigners carried out massive selling in the last few months of 2024.

The JCI on Thursday (20/2/2025) was at the level of 6,788, down 4.1 percent compared to early 2025. This was because foreign funds left the capital market reaching IDR 11 trillion.

"When foreign investors conduct massive selling (outflow), the impact on the JCI will be very significant, because from the domestic side, the available liquidity is not yet strong enough to withstand the selling pressure," said Ekky.

Capital Market Observer, Lanjar Nafi, said that the continuous selling of foreign investors could reduce the level of domestic investor confidence. This could be a negative catalyst for the fundamentals of the stock market.

On the one hand, domestic conditions are also considered to play a role in influencing the confidence of domestic and foreign investors. "This is the impact of domestic political stability which still tends to be unstable. Then, the declining purchasing power, seen from the inflation rate which is far below 2 percent which is not easily intervened by monetary policy due to the threat of exchange rate depreciation," he said.

Senior Investment Information Mirae Asset Sekuritas Indonesia, Nafan Aji Gusta, when contacted separately, assessed that this situation is still the effect of the dynamics of the Covid-19 pandemic which has made issuer performance less than optimal.

"Indeed, I admit that in 2025, there will be many shares coming out. Meanwhile, there is still no news about those coming in. At most, we are waiting for the second part of the review which will be determined later," he said.

Although MSCI can influence domestic investor perceptions, stock selection based on long-term fundamentals can be the focus of investors at this time.

Ekky assessed that the assessment from MSCI is important to note for stock sellers or traders. This is because the momentum of a stock entering or exiting the index can affect the movement of stock prices in the short term. However, the exit of a stock from MSCI is not always a negative signal, as long as the company's fundamentals remain solid.

"It is important to remember that MSCI focuses more on liquidity and market capitalization in determining its index constituents, rather than solely on the fundamental quality of the companies. Therefore, investors need to stick to strong fundamental analysis in determining their investment decisions, without being too influenced by changes in the MSCI index," he said.

Lanjar also assessed that retail investors in Indonesia are not too affected by MSCI's assessment. Instead, Lanjar said, investors should consider stock fundamentals and macroeconomic conditions before making investment decisions.

"In addition, investors must also diversify their investment portfolio to reduce risk," he said.