Indonesia’s stock market suffered its worst one day decline in nearly three decades on Friday, with the Jakarta Composite Index plunging more than 11 percent after global index provider MSCI proposed removing Indonesia from its emerging market classification.

The benchmark fell 8 percent shortly after the market opened, triggering a 30 minute trading halt before losses deepened. The selloff came after MSCI launched a consultation on a proposal to reclassify Indonesia from emerging market to standalone market status.

MSCI said the proposed reclassification followed persistent concerns raised by international investors about the investability and functioning of Indonesia’s equity market. These include opaque shareholding structures, high ownership concentration, suspected coordinated trading activity and limited evidence of effective regulatory enforcement.

Indonesia’s authorities have introduced several reforms in response to these concerns, including enhanced disclosure of shareholders holding more than 1 percent, greater investor classification disclosure, reporting requirements for highly concentrated shareholdings and a roadmap toward a minimum free float requirement of 15 percent.

However, MSCI said market participants had not yet observed sufficient and consistent evidence that these measures had materially improved market governance and market functioning. As a result, MSCI said continued classification of Indonesia as an emerging market was no longer considered appropriate.

The potential reclassification has significant implications for Indonesian equities because MSCI indexes are widely followed by international institutional and passive investment funds. A move to standalone market status would remove Indonesian securities from MSCI’s emerging and frontier market indexes, potentially forcing funds benchmarked to these indexes to reduce or reassess their exposure to Indonesian stocks.

Investor concerns were also reflected in the currency market, with the Indonesian rupiah weakening sharply toward its record low. The combination of potential foreign equity outflows and currency pressure has increased concerns about broader financial market volatility.

MSCI has extended the consultation process until April 30 2027 and plans to announce its final decision by June 30 2027. Until further notice, the index provider will also maintain a freeze on certain index related changes involving Indonesian securities, including increases in foreign inclusion factors and additions to the MSCI Indonesia Investable Market Index.

The proposed downgrade does not mean Indonesia has immediately lost its emerging market status. MSCI is conducting a consultation and could reconsider the proposal if it sees clear evidence of material improvements in market governance and functioning before the final decision.

For investors, the key issue is therefore whether Indonesia can demonstrate sustained improvements in transparency, ownership disclosure, free float and regulatory enforcement. Until greater clarity emerges, concerns over potential foreign capital outflows and continued uncertainty around Indonesia’s index classification are likely to remain important drivers of market sentiment.