By Kusnandar & Co., Attorneys At Law – Jakarta, Indonesia
The sharp
decline of Indonesia’s Composite Stock Price Index (IHSG) over two consecutive
trading days is not merely a routine market correction. It represents a
critical stress test for Indonesia’s capital market structure and a clear
warning that long-standing structural weaknesses can no longer be ignored. The
scale and speed of the sell-off—severe enough to trigger trading halts—signal a
crisis of confidence rather than a temporary bout of volatility.
At the core of
this turbulence lies global investor concern, particularly following warnings
from Morgan Stanley Capital International (MSCI). As a key global index
provider, MSCI plays a central role in shaping international portfolio
allocations. Its concerns regarding transparency, free-float calculation, and
ownership structure in Indonesia’s stock market have profound implications.
When doubts emerge over the reliability of market data and investability
standards, global investors tend to react swiftly—and decisively—by reducing
exposure.
The market’s
reaction was immediate. Foreign investors engaged in aggressive sell-offs,
liquidity thinned rapidly, and price discovery turned disorderly. This response
highlights an uncomfortable reality: confidence in capital markets is built not
only on economic growth prospects, but also on governance, clarity of
regulation, and trust in data integrity. Without these foundations, even
fundamentally strong markets become vulnerable to sudden capital flight.
In response to
the turmoil, Indonesia’s Financial Services Authority (OJK) announced three
major reform initiatives aimed at strengthening the capital market. These
reforms focus on improving free-float requirements, enhancing transparency of
share ownership, and reinforcing regulatory oversight of market data and
trading mechanisms. Conceptually, these measures are well-targeted. Higher free
float can improve liquidity and price efficiency, while clearer ownership
disclosure enhances accountability and reduces information asymmetry.
However, the
timing of these reforms raises important questions. Why did such fundamental
adjustments only gain urgency after a market shock? Structural reforms are most
effective when implemented proactively, not reactively. Markets tend to
penalize delayed responses, interpreting them as signs that risks were
underestimated or overlooked. In this sense, the IHSG correction exposes not
only market fragility but also the cost of regulatory inertia.
Beyond
short-term stabilization, the real challenge lies in restoring and sustaining
long-term investor confidence. Global institutional investors do not evaluate
markets based on isolated policy announcements. They assess consistency,
enforcement, and the credibility of institutions over time. For OJK’s reform
agenda to succeed, it must be implemented transparently, communicated clearly,
and enforced without exception. Half-measures or prolonged uncertainty would
only deepen skepticism.
It is also
important to recognize that the damage from market turmoil extends beyond index
levels. Volatility of this magnitude undermines domestic investor sentiment,
discourages retail participation, and raises capital costs for Indonesian
companies. If left unaddressed, such conditions could weaken the broader
financial ecosystem and reduce the attractiveness of Indonesia as a long-term
investment destination.
In the short
term, market volatility is likely to persist as investors reassess risks and
await concrete implementation of reforms. In the medium to long term, however,
this episode can serve as a turning point. If regulators use this moment to
genuinely align Indonesia’s capital market with global best practices, the
crisis could evolve into an opportunity.
Ultimately,
the recent IHSG plunge should not be viewed simply as a market setback. It is a
powerful reminder that credibility, transparency, and governance are the true
currencies of modern capital markets. Whether Indonesia emerges stronger from
this episode will depend not on how quickly the index recovers, but on how
decisively reforms are executed to rebuild trust and resilience for the future.
By : K&Co - February 2, 2026
