Flooring Guide by Cinvex – JAKARTA — Nomura Holdings Inc. has become the latest global financial institution to downgrade Indonesian stocks, following similar moves by Goldman Sachs Group Inc. and UBS. This series of downgrades comes amid intensifying concerns over the investability of the domestic stock market, amplified by a recent warning from MSCI Inc.
In its most recent research note, Nomura revised its rating for Indonesian stocks from overweight to neutral. The firm cited escalating investability risks and the potential for significant passive fund outflows should Indonesia’s status within global indices undergo further review.
“MSCI’s warning about the potential reclassification of Indonesia to a frontier market status came as a surprise to us and the market,” stated Chetan Seth, a strategist at Nomura, as quoted by Bloomberg on Monday (February 2, 2026).
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Nomura’s previous positive stance on the Indonesian stock market was predicated on several factors, including attractive relative valuations, expectations of economic stabilization and robust corporate earnings, as well as subdued market expectations following a period of underperformance. However, the emerging risks associated with passive fund outflows have introduced a more challenging short-term outlook.
Renewed pressure on the Indonesian stock market was evident during Monday’s trading (February 2), when the Jakarta Composite Index (IHSG) experienced a significant correction of up to 5.31% by the close of the first session. This decline was primarily driven by weakness in mining and energy sector stocks and mirrored a broader risk-off sentiment across the regional markets, spurred by plummeting metal prices and a strengthening US dollar.
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This widespread sell-off marked the deepest among Asian stock indices, exacerbating the challenges for Indonesia as it strives to avert a market downgrade. Last week, MSCI highlighted critical investability issues, particularly concerns regarding the low stock free float in the market.
In a proactive response, Indonesian financial market regulators have unveiled a series of reform measures. These initiatives include instructing the sovereign wealth fund Danantara to bolster the market through strategic stock purchases and outlining plans to double the minimum free float threshold to 15%.
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While these measures initially provided a brief positive impact, reflected in the IHSG rebound witnessed last Friday, several analysts caution that considerable uncertainty continues to loom over the market.
Gary Tan, a fund manager at Allspring Global Investments, suggested that a prolonged period of weakening commodity prices could compel regulators to adopt a more defensive reform strategy, prioritizing short-term stability. This, he noted, risks decelerating the crucial reform momentum needed to enhance the long-term attractiveness of the Indonesian market.
Nomura’s decision further underscores a growing trend among global investment banks revising their outlook on Indonesian stocks.
Prior to Nomura’s move, UBS had already downgraded Indonesian stocks from overweight to neutral. This followed Goldman Sachs’ earlier decision to slash its recommendation to underweight.
Goldman Sachs had previously issued a stark warning: in an extreme scenario where Indonesia is reclassified from an emerging market to a frontier market, passive funds tracking the MSCI index could potentially withdraw up to US$7.8 billion.
Additionally, further potential fund outflows could materialize if FTSE Russell reviews Indonesia’s market free float methodology.
This cumulative pressure places the Indonesian stock market at a critical juncture, where the effectiveness of regulatory reforms and the clarity of policy will be pivotal factors closely observed by global investors in the coming months.
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