The index compiler said the country’s moves regarding enhanced disclosures, more granular investor classification and a roadmap to raise the minimum free-float requirement to 15% are a step in the right direction. Still, what matters for global investors is the consistent implementation and sustained effect of such measures in the market, it said in a Tuesday release. 

“Should sufficient progress not be evident by the time of the November 2026 MSCI index review, MSCI will consider a range of options for the appropriate treatment for the Indonesia market, potentially including a consultation on the reclassification of Indonesia from emerging markets to frontier markets,” according to the statement.

The move is likely to deepen investor unease that’s built over months after MSCI in January flagged a potential downgrade to frontier status due to investability concerns and the limited number of shares available for public trading. The warning, which had triggered a market rout, prompted authorities to introduce a series of reforms.

“The market retains emerging market status, but with a warning label attached,” said Mohit Mirpuri, a partner at SGMC Capital Pte in Singapore. “The burden is now on regulators to demonstrate credible progress over the coming months.”

Tuesday’s update, already delayed from May, followed last week’s move by the index compiler to revise Indonesia’s assessment on information flow to negative in its annual accessibility review due to limited transparency in shareholding structures, coordinated trading behavior that undermines price formation and a lack of corporate disclosure in English.

Uncertainty ahead of the review had pushed many market participants to the sidelines, with investors citing the overhang from potential outflows. Coupled with concerns over policy direction and the fallout from the Iran war, the benchmark Jakarta Composite Index had tumbled to become the world’s worst-performing major gauge this year. The gauge was up as much as 1.2% in the morning before paring to 0.6% as of 9:30 a.m. local time.

“The macro is clearly quite challenged,” said Yi Ping Liao, a fund manager at Franklin Templeton. “I still think that there are things that need to be worked out, and until then, I don’t think that there’s a very strong case to be in Indonesia.”

Regulators have introduced a series of reforms in recent months, including raising minimum float. The Indonesia Stock Exchange took the unusual step of identifying firms with high shareholder concentration—an issue that underpinned MSCI’s decision to remove some of these stocks from its indexes in May. The installation of capital markets veteran Jeffrey Hendrik as chief executive officer of the stock exchange recently has also steadied some nerves.

According to Hasan Fawzi, head of capital market supervision at the Financial Services Authority, the decision “provides momentum to continue, strengthen, and accelerate the capital market reform agenda” that’s been initiated since the start of the year. 

An ultimate call to keep Indonesia’s emerging-market status could curb foreign outflows and ease pressure on the rupiah. The currency has hit successive lows, weakening more than 6% against the US dollar this year and ranking among the worst performers in its peer group. Overseas investors have also sold $4 billion of equities, dragging the benchmark index down about 30%.

Such an outcome could also provide some relief to President Prabowo Subianto, whose populist agenda and push for tighter state control have unsettled investors. Fears of greater state intervention in commodity exports have driven funds to the sidelines, while the abrupt firing of the head of Indonesia’s nutrition agency—central to Prabowo’s free meals program—and a subsequent corruption probe have added to unease.

“I think it’s positive that MSCI acknowledged the recent reforms,” said Felix Darmawan, an analyst at PT BCA Sekuritas. “The focus now shifts from announcing policies to executing them. If implementation is convincing over the next year, the reclassification risk could gradually fade.”

Investors are now awaiting FTSE Russell’s review. The index provider said last month it would delay re-ranking Indonesia, including changes to free float and stock additions, until at least its September review to allow for further monitoring.