Indonesia Risks Losing Foreign Capital Without Urgent Liquidity Reforms, Asset Managers Warn

JAKARTA, Investortrust.id — Indonesia’s equity market is at risk of sliding into irrelevance for global investors unless regulators move quickly to fix liquidity constraints, improve transparency, and overhaul rules that unintentionally push major stocks out of global indices, according to industry leaders speaking at the Investortrust Capital Market Forum.

The concerns surfaced repeatedly throughout the day’s sessions, which began with a keynote by Bombay Stock Exchange CEO Sundararaman Ramamurthy and continued with a panel featuring Kartika Sutandi of Jarvis Asset Management, Ranju of UBS Indonesia, and senior regulators including OJK’s Pepek Marsiah and Setio Basuki. Speaking from distinct vantage points — global exchange leadership, asset management, institutional investment, and regulatory oversight — they collectively outlined the structural barriers preventing Indonesia from reaching its capital-market potential.

Jarvis Asset's Kartika argued that Indonesia’s market structure increasingly works against both institutional and retail investors — and that current regulations are worsening the country’s standing in global benchmarks.

“Indonesian capital market is very retail-oriented, but retail investors don’t have the access or capacity to learn fundamentals the way institutions do,” she said. “We need transparency and liquidity. Those are the two main points from my side — because as an asset manager, I need to be able to get in and out quickly.”

Kartika pointed to the sharp decline in Indonesia’s weight in the MSCI Emerging Markets Index — from around 4% in 2010 to just 1.3% today — as evidence that the market has become “meaningless” for active global funds.

“When you fall below 4%, foreign active managers will not look at your country. You become insignificant — it’s too expensive for them to build a team just to watch Indonesia,” she said. “The ones who come are only passive ETFs. They don’t see fundamentals, they only care about liquidity because they need to mimic the index.”

FCA Rule Under Fire

Kartika reserved her strongest criticism for Indonesia’s Forced Call Auction (FCA) mechanism. Under current rules, any stock suspended twice is automatically moved into FCA — a regime originally meant for illiquid penny stocks, but increasingly ensnaring companies with healthy prices and active trading.

“Every time any company goes to FCA, liquidity dies,” she said. “FCA is good when you try to make liquidity for non-liquid stocks at Rp 50. But with the current regulation, any company with two suspensions goes to FCA. Those companies are liquid and above Rp 50 — when you put them into FCA, it’s dead.”

She cited Indonesia's largest tin miner PT Timah Tbk (TINS) as a high-profile casualty: the stock was removed from MSCI after entering FCA, immediately cutting it off from potential foreign inflows. TINS shares were traded under the FCA mechanism from Wednesday, October 22, 2025, to Thursday, October 30, 2025.

“We want more companies to get into MSCI, but our regulation makes them get out,” Kartika said. “If retail cannot see live broker flows and cannot access information, they will always lose to institutions. More transparency, less risk. If retail makes money, liquidity improves, and then institutions will come.”

UBS: Free Float Reform Is the Crucial First Step

Ranju, representing UBS on the panel, echoed Kartika’s concerns while noting that regulators have already acknowledged many of the issues. “To be fair, OJK already recognizes the problem and is moving in the right direction,” he said, referring to recent statements about tightening free-float rules.

“In my view, the key first step would be to get to a minimum free float of 25% over a period of three years,” he added. Raising free float, he argued, is essential to deepen liquidity and make Indonesian assets investable for large global funds.

Ranju also warned that Indonesia’s mutual fund industry — roughly US$55 billion — is small not just versus India, but even compared with regional peers.

“Even if you take India out of the equation, Thailand’s top two managers alone run more than our whole industry. The Philippines has more than double our AUM, Malaysia is far ahead,” he said. “The core issue is culture. You need a culture where people think of equities as an asset allocation strategy — not just timing the market and selling when it goes up a little bit.”

Lessons From India: BSE Shows What Scale and Trust Look Like

This debate over liquidity and transparency came against the backdrop of India’s own experience, presented earlier in the day by Bombay Stock Exchange (BSE) CEO Sundararaman Ramamurthy.

Ramamurthy’s India story echoed Kartika’s and Ranju’s central message: without transparent markets, robust infrastructure, and rules that encourage — not suppress — liquidity, Indonesia’s capital market cannot support long-term economic ambition.

In the forum's keynote speech, Ramamurthy stressed that a modern capital market must be easy to enter, easy to exit, and safe to transact in — supported by infrastructure that can handle very high volumes without compromising stability. "Entry, exit, protection and return. These are the four pillars which will make public to participate in capital market. And for this as I said liquidity, transparency, democratization of access to the marketand information, corporate governance, these are very important," he said.

He also pointed out that India’s move towards faster settlement and technology-driven supervision only worked because regulators gave the market clear, consistent guardrails, not ad-hoc constraints that kill liquidity.“Technology helps in liquidity. Technology helps in democratization of access to markets and information. Technology helps in corporate governance, investor awareness, and risk protection.”

On the retail side, Ramamurthy argued that the real competitive advantage lies in making retail investors feel protected and rewarded, not just in attracting foreign funds. “If everybody has to participate, all these ingredients are very important — liquidity, transparency, democratization of access, good governance, risk management. These are what give people the confidence to enter the market.”

India’s experience reinforces what Kartika and Ranju have argued from the Indonesian side: without transparent markets, robust infrastructure, and clear rules that promote liquidity, neither a roadmap nor headline GDP targets will translate into real capital formation.

OJK: Roadmap, New Systems, and Coordination

Responding to the concerns from industry players, Pepek Marsiah, head of issuer and public company supervision at Indonesia’s Financial Services Authority (OJK), underlined that regulators are building out infrastructure and a long-term roadmap to strengthen the market.

“We have a capital market roadmap from 2023 to 2027,” she said. “The target in 2027 is that we hope we can get 1,100 listed companies in Indonesia.”

Pepek explained that OJK has been digitising supervision processes together with the Indonesia Stock Exchange (IDX).

“We have SPA, the system where issuers submit reports together with IDX. When issuers submit reports, OJK and IDX both receive them,” she said, referring to the joint reporting platform. She added that OJK is preparing to launch a new reporting system for exchanges “maybe next week,” allowing self-regulatory organisations to file data directly through an integrated platform.

OJK is also starting to incorporate new technology and sustainability standards into its supervisory framework.

“We are arranging how we use technology, artificial intelligence. We are still processing and reviewing annual reports from issuers,” Pepek said. “We are also proposing to implement Scope 1 and Scope 2 for ESG sustainability reports.”

At the governance level, she stressed that OJK cannot act alone.

“We need coordination between regulator and also SRO and also the stakeholders in the capital market so we can work together,” she said. “Hopefully we can grow more than India.”

A System at a Turning Point

Despite disagreements over specific tools such as FCA, both asset managers and regulators seemed to converge on one point: Indonesia has the building blocks for a much larger, more dynamic capital market — but needs to align incentives, rules, and technology quickly.

“If retail makes money, liquidity comes. If liquidity comes, foreign follows. This is how markets grow,” Kartika said.

Ranju framed it as a question of urgency, not capability. “Indonesia is not lacking potential — it is lacking urgency. Liquidity reform is not optional; it is foundational.”

With OJK’s roadmap on the table and India’s BSE offering a working example of tech-led, retail-driven market deepening, the question now is how fast Indonesia can close the gap between ambition and execution.

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