Indonesia's financial markets are under renewed scrutiny as a second major index provider flags potential downgrade risks. This development follows earlier concerns raised by MSCI regarding the transparency of share ownership in Southeast Asia's largest economy.

S&P Dow Jones Indices issued a warning on Tuesday, placing Indonesia alongside Turkey on a watchlist for a potential reclassification during the 2027 review cycle. Both countries are currently categorized as emerging markets.

The index compiler stated it would continue to monitor developments related to ownership transparency and track the effectiveness of corrective actions by the Indonesia Stock Exchange.

The announcement indicated that if conditions deteriorate, S&P Dow Jones Indices could implement special treatment measures for Indonesian securities.

The agency further clarified that if issues remain unresolved one year after such special measures are initiated, Indonesia's market classification would be subject to reconsideration in the subsequent annual review.

This move by S&P Dow Jones Indices comes after MSCI issued a similar warning, with that firm also reviewing Indonesia's emerging market status.

The initial alert from MSCI in January triggered significant capital outflows from Indonesian equities. The Jakarta Composite Index has fallen 31% cumulatively, making Indonesia's stock market one of the world's worst performers this year.

On Wednesday, the index declined a further 1%.

In its report, MSCI highlighted that highly concentrated and opaque ownership structures at Indonesian companies undermine proper stock price formation. MSCI is scheduled to announce its market classification decisions in November.

In response to the warnings, authorities in Jakarta have implemented measures aimed at improving market transparency.

Indonesia has doubled the minimum free-float requirement for listed companies to 15%, granting firms up to three years to comply with the new standard.

The country has also tightened shareholder disclosure rules, mandating public reporting for ownership stakes exceeding 1%, a significant reduction from the previous 5% threshold.

Beyond the threat of a market downgrade, investors are also concerned about President-elect Prabowo Subianto's proposed high-cost populist policies and the perceived trend of increasing government intervention in the private sector.

Macroeconomic and fiscal policy concerns have contributed to a sharp depreciation of the Indonesian rupiah against the US dollar. The currency is currently at a historic low, having weakened by 8% this year.