January market recap: domino effect from MSCI announcement
In the immediate aftermath of the MSCI announcement, JCI corrected sharply, touching a low of 7,482 (-18% from its peak) before closing January at 8,330 (-3.7% MoM). Foreign investors recorded Rp12.3 tn (~USD700 mn) of net selling over Wednesday–Friday, reflecting early positioning ahead of a potential downgrade scenario from Emerging Market (EM) to Frontier Market (FM), before turning back to a light net buy on Monday. With Indonesia currently accounting for ~1.2% of the MSCI EM Index, a full reclassification could imply an additional USD9-16 bn of outflows, reinforcing our view that MSCI-related flows will remain a key near-term overhang for the market.
Outcome of Indonesia SRO meeting with MSCI
Following discussions between IDX, OJK, and other SROs with MSCI, several concrete measures were agreed and communicated to the market. Key outcomes include a lowering of the share ownership disclosure threshold to >1% from the previous >5%, alongside the introduction of a more granular investor classification framework, expanding investor categories from 9 to 27 sub-types and incorporating beneficial owner disclosure. Regulators also confirmed that the minimum free float requirement will be increased from 7.5% to 15%, with gradual implementation in coordination with market participants to mitigate potential market disruption. Overall, we view the prompt and proactive regulatory response as constructive, helping to anchor investor confidence and reduce longer-term risks. Separately, the government’s recent move to raise equity investment limits for pension funds and insurers opens the door for deeper domestic institutional participation, helping rebalance a market that has been heavily retail-driven (~53% of IDX turnover in 2H25). We estimate that potential domestic institutional flow support—including support from Danantara and BPJS Ketenagakerjaan—could be quite substantial (Exh. 3), providing a medium-term buffer against external flows. Even partial realization of these initiatives should improve market depth and provide valuation support for fundamentally strong, liquid large-cap stocks.
Entering earnings season
Looking ahead, Indonesia’s 4Q25 GDP release and companies’ 4Q25 earnings will be key catalysts, alongside initial guidance for 2026F. The big banks will lead the reporting season, with early results from BBCA and BBNI already indicating resilient earnings, a trend we expect to be broadly sustained across the sector. Entering 2026F, we expect corporate earnings to recover, with growth of ~11%, supported by a low earnings base in 2024–25, a healthier GDP outlook of 5.1%, and the lagging impact of a lower interest rate environment. Further details on our earnings projections are outlined in our 2026 Market Outlook.
Relative performance: top picks hold up amid volatility
Against this backdrop, our top picks traded broadly flat (0% MoM), outperforming the JCI’s ~3.7% MoM decline. This relative resilience reinforces our preference for defensive earnings profiles and selective bottom-up stories with strong fundamentals. Performance was supported by gains in MBMA (+22.8%), ERAL (+11.5%), AADI (+9.0%), MYOR (+8.5%), and PWON (+6.5%). Meanwhile, several top picks corrected sharply, including BBCA (-8.4%), CMRY (-9.7%), and DSNG (-10.7%). Some names within our top picks were particularly affected by MSCI-related flows, notably WIFI (-23.1%) and EXCL (-12.0%).
JCI targets unchanged
We maintain our JCI targets at 8,960 for our base case and 9,600 for our bullish case. Overall, we recommend investors remain selective, maintain exposure to defensive names, and gradually accumulate high-conviction stocks on weakness, positioning for normalization once MSCI-related overhangs fade. Our top picks remain skewed toward traditionally defensive sectors such as consumer staples and telcos (ICBP, MYOR, EXCL), undervalued banks (BBCA, BBTN), commodities play (AADI, MDKA), and selected bottom-up stories. We replace MBMA with MDKA, reflecting more limited upside for the latter. We remain constructive on domestically oriented names with limited foreign ownership exposure—particularly banks, consumer, and telcos—which should offer relative defensiveness amid ongoing uncertainty.
