Indonesia’s stock market has fallen close to 40% in 2026. Capital outflows of that magnitude usually come with a country in crisis. The data say otherwise: the economy grew 5.45% in the first half, inflation is running at 3%, there is no banking crisis and no sovereign debt emergency, and companies are still making money.

The problem is not the country or its companies. It is an index. MSCI, the private index provider that decides which countries qualify as emerging markets, has proposed removing Indonesia from that category over concerns about transparency and market functioning. It is a proposal, not a decision. But MSCI has already been excluding individual stocks throughout the year, index funds tracking its benchmarks have been forced sellers of those names, and the rest of the market has front-run whatever may come in June 2027.

This is the kind of special situation we look for at Quality Value: forced selling for reasons unrelated to the business. It works exactly like the spin-offs we regularly analyze, such as the thesis we published this year on Mobility Global, where index funds had to sell the spun-off subsidiary because it did not belong in their index, regardless of the quality of the business.

With Indonesia the mechanics are the same, but at the scale of an entire country.

To address it with the rigor a full market report deserves, we have partnered with HAMCO AM, the global deep value manager led by John Tidd, which knows this market first-hand and, in our view, is among the firms that understand the region best. Pablo Istillarte, its Managing Director, writes Part 1: his view of the market, why they are investing in it, and a sample thesis on a company they hold.

We write Part 2: the precedents of other markets downgraded by MSCI and how they performed afterward, the ways to gain exposure to Indonesia, and what we have done in the Quality Value portfolio.

At HAMCO we have been doing the same thing for years: looking for good companies that the market is selling for reasons that have nothing to do with their business. We run global deep value strategies, we analyze companies one by one, and we pay no attention to benchmarks or fashions. We always ask the same question: how much are we paying for what this company is really worth?

That takes us to places where others do not want to be. Almost always, the best prices appear where there is the most fear and the most forced selling. The cheaper you buy, the more margin you have if you are wrong.

Today that place is Indonesia.

A historic decline with no crisis behind it

The Jakarta Composite fell 35% in the first half of 2026, from 8,646 to 5,643 points. It is the worst first half in the exchange’s history, worse than 2008 and 2020. Foreign investors sold more than Rp 73.5 trillion, about US$4.6 billion, mostly banks and large conglomerates. Measured in dollars, MSCI Indonesia trades more than 50% below its 2023 and 2024 highs.

A decline of this size usually comes with a debt crisis, runaway inflation, or a banking problem. None of that has happened in Indonesia, and that is where the opportunity lies.

On January 28 the index fell 7.35% to 8,320 points in panic selling after MSCI announced it was freezing its assessment process for Indonesian stocks. Over two days it lost as much as 16.7% following MSCI’s warning of a possible downgrade from Emerging to Frontier Market. Then came the toughest half-year in its history, the one described above.

In June, MSCI kept Indonesia as an Emerging Market but left open the possibility of a consultation to reclassify it as Frontier if reforms were not applied consistently. Rather than reassuring investors, the ambiguity punished the market again: the index fell and the rupiah approached 18,000 per dollar.

Other factors piled on. Concern about state intervention in mining after an environmental disaster. Tensions in the Middle East, which weakened the rupiah and slowed growth, and a 50 bp rate hike by Bank Indonesia.

What has not happened is just as important. No banking crisis and no sovereign debt emergency. Year-on-year inflation in August was 3.2%, a low figure for an emerging market. And companies are still making money.

MSCI’s punishment

Read more