MSCI Update - Six Months to Prove Reforms Work

OJK-IDX Dialogue: More Cases Coming, MSCI Meeting Today
We attended the latest dialogue between OJK, IDX and key domestic market participants on 18 October. Our main takeaway is that enforcement is under way, with more cases under investigation, but MSCI has not given explicit feedback on whether the reforms so far are sufficient. OJK and IDX meet MSCI today to seek clarification; the views below are our own. OJK's IDR2.1tr of sanctions on 16 October are the largest enforcement step since the January freeze: DSSA for trading manipulation, and BREN and CUAN for IPO share allocation breaches, with penalties imposed on the responsible parties rather than the listed companies. This is a meaningful start. We read its seven consultation questions as three tests: verifiable ownership and effective free float, consistent market-wide enforcement, and reforms that hold once the freeze is lifted.

Six Months to Build the Evidence
The period to 30 April 2027 is best used to identify evidence gaps with MSCI, gather direct feedback from global investors, have key indicators independently assessed and submit one evidence pack well before the deadline. Passive outflow of c.USD3bn depends on a final decision, but active funds can cut exposure earlier, and MSCI lands on a market already strained by UST yields above 5%, a Rupiah near 18,000 and tighter fiscal room.

Strategy: Defensive on the Index, Selective Outside MSCI
We stay defensive at the index level and underweight foreign-heavy large caps, while gradually accumulating stocks outside MSCI indexes, namely BRIS, ANTM and WINS, and keep our sell call on PTBA. BBCA remains our preferred bank on fundamentals, and we would accumulate on weakness. Near-term catalysts are today's OJK-IDX meeting with MSCI, foreign flows this week, the IDX demutualization EGM on 28 October, the Nov-26 review and any interim MSCI report.