For institutional investors managing large allocations, clarity is not a preference; it is a prerequisite. — The Jakarta Post
MORE than three decades ago in late 1993, a conversation unfolded that quietly shaped how global investors perceived Indonesia.
Barton Biggs, then an influential global strategist at Morgan Stanley, asked George Soros whether Indonesia should be regarded as a “sure thing” or merely a “conjecture”.
That reflected a deeper uncertainty about whether emerging economies could transform their promise into investable certainty. At the time, structural reform was redefining parts of the developing world.
Mexico had begun strengthening transparency and aligning its financial architecture with international standards, earning the confidence of institutional investors.
Biggs hoped Indonesia might follow a similar trajectory and emerge as a new anchor in Asia.
Soros responded with characteristic restraint: “Mexico will be the next Mexico.” His message was clear: Credibility cannot be inherited through optimism alone.
Indonesia, in his assessment, remained a conjecture, a country rich in potential but constrained by systems that were difficult for outsiders to read.
As 2026 begins, that decades-old scepticism feels unexpectedly relevant.
Recent turbulence surrounding Indonesia’s stock market has revealed a persistent gap between domestic regulatory progress and the expectations of global capital.
The warning issued by index provider MSCI, whose benchmarks guide trillions of dollars in institutional portfolios, has once again reminded policymakers that modern markets operate on legibility.
Investors do not simply evaluate growth; they evaluate whether a market can be interpreted with confidence.
The temporary trading halts that disrupted activity on the Indonesia Stock Exchange (IDX) last week underscored this vulnerability. Trading suspensions are rarely seen as isolated technical measures. Instead, they signal uncertainty about the resilience of market infrastructure.
For global investors already attentive to information asymmetry, such events reinforce the perception that risks may not be fully measurable.
MSCI’s decision to review Indonesia’s classification, and the accompanying possibility of a downgrade from “emerging market” to “frontier market”, magnified these concerns.
Even the prospect of reclassification triggered significant foreign selling pressure. While Indonesia represents only a small fraction of major global indices, the potential withdrawal of billions in portfolio flows would still deliver a meaningful shock to domestic liquidity.
This episode serves as a reminder that in an era dominated by passive investment strategies, capital can move swiftly when confidence weakens.
Market data reinforce this narrative. Over the past year, many emerging markets recorded strong gains, yet Indonesian equities struggled to keep pace.
Dividend payments indicate that corporate profitability remains intact, but declining share prices suggest that investors are discounting future expectations.
Equity markets are forward-looking instruments. When valuations soften collectively, they often reflect unresolved structural questions rather than temporary volatility. Regional comparisons further clarify the challenge.
Several neighbouring markets have delivered steadier returns, supported by broader corporate representation and deeper investor participation.
Indonesia, by contrast, continues to exhibit a relatively concentrated structure, with a limited number of large firms accounting for a substantial share of index weight. Concentration does not automatically signal weaknesses, but it does amplify sensitivity to governance concerns within key sectors.
Transparency surrounding free float, the portion of shares genuinely available for public trading, has become one focal point of investor scrutiny. Regulations exist, and on paper they appear robust.
Yet global investors are less concerned with formal compliance than with practical accessibility. When ownership structures involve nominee accounts, cross-holdings or layered investment vehicles, the distinction between dispersed ownership and effective control can blur.
For institutional investors managing large allocations, clarity is not a preference; it is a prerequisite.
This is where the notion of a governance discount becomes relevant. Markets routinely assign lower valuations to environments where transparency is uncertain, not necessarily as a judgment on economic strength but as compensation for interpretive risk.
Indonesia’s valuation metrics, which at times appear relatively elevated compared with some peers, suggest that investors are willing to pay for growth potential, but only up to a point. If uncertainty rises, the adjustment tends to be swift. Viewed across a longer horizon, the issue becomes less about episodic volatility and more about reputational continuity.
Indonesia’s economy has expanded considerably over the past three decades, yet the translation of that growth into durable market confidence has been uneven.
Economic scale alone does not guarantee sustained capital inflows; credibility must accompany it. Reform, therefore, cannot rely on incremental regulatory adjustments.
What is required is a structural repositioning that strengthens the institutional readability of the market.
The objective is not merely to satisfy external benchmarks but to ensure that Indonesia’s economic narrative can be verified through transparent systems.
One priority is the integration of financial data into a coherent national architecture. Ownership records, issuer disclosures and trading information should converge within a framework that allows investors to trace relationships without navigating fragmented repositories. — The Jakarta Post/ANN
Irvan Maulana is director of the Centre for Economic and Social Innovation Studies. The views expressed here are the writer’s own.
