Indonesia Rushes to Convince S&P to Keep Emerging Market Status as Downgrade Risk Looms

JAKARTA, Investortrust.id — Indonesia's stock exchange is moving quickly to reassure S&P Dow Jones Indices (S&P DJI) after the global index provider placed the country's equity market on a watchlist for possible reclassification, raising the stakes for Southeast Asia's largest economy as it fights to preserve its Emerging Market status.

The Indonesia Stock Exchange (IDX) said it plans to meet S&P in the coming weeks to present a series of market reforms designed to address concerns over transparency, shareholder concentration and market liquidity.

An eventual downgrade from Emerging Market to Frontier Market could have far-reaching consequences for Indonesia's capital markets. Such a move would likely trigger passive fund outflows, shrink the pool of eligible institutional investors, raise companies' financing costs and weigh on market valuations.

The review also serves as a broader test of Indonesia's commitment to governance reforms at a time when global investors are demanding greater transparency and stronger investor protections across emerging markets.

Indonesia's Pitch to S&P

IDX Director of Trading and Exchange Member Regulation Irvan Susandy said the exchange has already contacted S&P and is awaiting confirmation for a formal meeting.

"We have already contacted S&P and are waiting for their response," Irvan told reporters at the IDX headquarters in Jakarta on Wednesday.

According to Irvan, the exchange will present reforms that have already been implemented, including more granular investor classification data, disclosure of shareholders owning more than 1% of listed companies, and new regulations requiring a minimum 15% public free float with a three-year transition period.

"We have already delivered data on investor granularity, shareholders above 1%, and the 15% free-float requirement. The regulation has been issued with a three-year grace period," he said.

Addressing Ownership Concentration

IDX will also explain its implementation of the High Shareholding Concentration (HSC) list, a monitoring mechanism that identifies listed companies whose shares are heavily concentrated among a small group of shareholders.

Irvan said companies can move on or off the list as ownership structures change over time.

"Several stocks have entered the HSC list, while others have exited because ownership has become more diversified," he said.

He added that the exchange continues refining the methodology behind the HSC framework, although the detailed formula will remain confidential, consistent with practices at other global exchanges.

Beyond a Technical Review

The exchange stressed that market surveillance extends well beyond monitoring concentrated ownership.

Irvan said IDX also uses real-time trading surveillance to detect unusual market activity and is surveying brokers and asset managers to gather feedback on recent regulatory reforms and identify additional improvements.

The reforms are part of an eight-point capital market transformation program jointly implemented by IDX, Indonesia's Financial Services Authority (OJK), the country's financial regulator, and other self-regulatory organizations.

The Bigger Challenge Is Trust

S&P's decision to place Indonesia on its watchlist follows concerns over shareholder transparency, ownership concentration and the potential impact of those issues on market liquidity.

While Indonesia retained its Emerging Market classification for now, the country faces a critical review in 2027 that could determine whether it remains in the category alongside larger developing markets.

The warning comes even after MSCI retained Indonesia's Emerging Market status in its June 2026 review, underscoring that different global index providers are increasingly focused on governance and market quality rather than economic growth alone.

As Investortrust Chief Executive Officer Primus Dorimulu argued in a separate commentary published Wednesday, the watchlist should be viewed as "an alarm, not a verdict."

"A watchlist is not a verdict but a final warning before the market delivers its own judgment," he wrote.

Dorimulu argued that preserving Indonesia's Emerging Market status will require more than regulatory announcements.

Global investors, he said, will ultimately judge Indonesia on whether reforms improve transparency, strengthen price discovery, protect minority shareholders and reinforce confidence in the country's institutions.

For international investors, the outcome of S&P's review may prove to be one of Indonesia's most important capital market milestones over the next year, with implications extending well beyond benchmark classifications to the country's long-term ability to attract global capital.