By Amanda Lee

Indonesian stocks nosedived Thursday morning, triggering a trading halt before clawing back most of the losses later in the session in a show of volatility sparked by investability concerns.

Exchange regulators hit the brakes after the Jakarta Composite Index fell as much as 10% in early trade, continuing a selloff sparked by index provider MSCI Inc.'s warning about Indonesian securities' investability.

The tide turned after trading resumed, with the benchmark index last down only 1.95%.

On Wednesday, the JCI notched its biggest one-day loss since April after MSCI froze index-related changes for Indonesian stocks over what it said were significant investor concerns about company ownership structures.

Indonesian regulators have said they are working to address the issues but analysts expect volatility to continue for a while yet.

Those who expect more selloff pressure ahead point to the headwinds posed by fiscal and economic worries.

Before stocks went into freefall, investors had already begun pricing in additional risk premia into Indonesian assets to reflect concerns about the policymaking environment, Capital Economics' Jason Tuvey said in a note.

A widening budget deficit and President Prabowo Subianto's nomination of his nephew as a deputy governor at Bank Indonesia have added to signs that policy is shifting in a more populist and interventionist direction, Tuvey said.

The ousting of long-serving finance minister Sri Mulyani Indrawati last year compounded fears that the administration's social initiatives could derail fiscal consolidation.

Sri Mulyani was viewed as a pillar of stability by investors during her tenure at the Finance Ministry, credited with keeping the deficit in check and helping Indonesia secure investment-grade credit ratings, analysts say.

Prabowo has defended the social programs, saying they will boost productivity and ultimately save billions.

Now, already-nervous investors will be watching to see how regulators respond to the MSCI's warning.

If regulators don't do enough to improve disclosure then MSCI could downgrade Indonesia's market status, a move that might spur billions in capital outflows.

A demotion to frontier from emerging market would deal a significant blow to investor sentiment, driving about $8 billion to $9 billion in passive outflows, CGS International estimates.

That said, the current selloff could be a bit overdone, CGS International analyst Bertram Lai said in a report.

The steepness of the drop will doubtless have some wondering if it's time to buy the dip.

But economists and strategists at Goldman Sachs are wary.

"We expect the market to remain under pressure and do not view this [selloff] as an entry point," GS wrote in a report.

It pointed to the challenges Indonesia faces on the macro front, including soft private consumption, slowing credit growth and a rising fiscal deficit that is close to the legal cap of 3% of gross domestic product.

Other regional markets, such as the Philippines, have better growth-valuation parameters, said GS, expecting the MSCI overhang for Indonesian equities to persist over the next four months.

GS cut its end-2026 target for the JCI to 7700 from 9000, now expecting it to finish the year below the level it closed at in 2025.

Write to Amanda Lee amanda.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

January 29, 2026 03:16 ET (08:16 GMT)

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