No fallout likely from Jakarta

THE Indonesian stock market is being plagued by transparency and governance issues, but Malaysia need not fear. Market watchers remain optimistic about the stock market here.

Any major fallout, they say, can be contained although some reckon there may be some short-term impact on local companies.

Ever since the issue – centred on global index provider MSCI’s warning on Indonesia’s long-standing free float issue – broke out last month, the Malaysian stock market has stayed fairly resilient.

A senior analyst says: “We do not expect any immediate impact on Malaysian companies such as banks which have exposure there, as discussions on the issue are still ongoing.

“Our local banks remain well-protected from these regional uncertainties, largely due to their strong focus on the domestic market.”

Another analyst says that while MSCI’s actions in Indonesia have caused some volatility regionally, the impact on local stocks, if any, will generally concern sentiment and not be directly linked to companies’ operations.

“Bursa Malaysia may even enjoy the advantage of capital reallocation if funds move out of Indonesia due to the index’s concerns,” he says.

Areca Capital chief executive officer and fund manager Danny Wong is a bit more pessimistic, noting that besides banks, many plantation-related companies in Malaysia have exposure in Indonesia.

Additionally, local consumer, pharmaceutical, telecommunication groups also have businesses in Indonesia.

“Apart from MSCI concerns, some of these companies are also facing increased volatility, regulatory risks, and potential earnings pressure in the near-term.

“Key impact stems from the Indonesian government land crackdowns, currency depreciation (rupiah versus ringgit), and heightened environmental, social and governance scrutiny.

As the Indonesian rupiah has been depreciating lately, some companies may also be expecting an increase in operational cost (imported costs),” Wong says.

Wong feels there will be some short-term valuation impact on parent companies in Malaysia although some view the impact as “manageable”.

Indonesia’s current minimum free float for public companies is 7.5% which is relatively low compared with its regional peers, stoking concerns that companies are overly controlled by certain parties and stocks can easily be manipulated to their benefit.

Notably, the Indonesian Stock Exchange has said that it plans to increase this to 15% by the end of next month, and up to 25% over the longer-term.

Savvy investor Ian Yoong, who sits on the board of several listed companies, notes that there are listed companies on Bursa Malaysia which are affected by free float requirements by the MSCI.

“The prominent companies are Malayan Banking Bhd and CIMB Group Holdings Bhd which have Indonesian bank subsidiaries but I am very confident that any shortfall in free-float of both banks will be rectified by the end of 2026.

“Both of these Indonesian banks are fundamentally attractive, there should be no problem in finding placees for placements of new shares to increase free floats,” Yoong says.

No fundamental collapse

Fortress Capital Group chief executive officer Datuk Thomas Yong says the immediate impact of the Indonesian stock market woes, if any, would be volatility of the stock prices of listed subsidiaries, rather than a fundamental collapse of operations.

“The near term risk is that foreign capital outflows would weaken the rupiah further and hence negatively impact the earnings of Malaysian companies with subsidiaries there,” Yong says.

Some other potential secondary effects are an economic softening as a result of a weak capital market and business confidence and tighter business funding conditions, Yong adds.

“It is in the best interest of Indonesia to continue attracting foreign capital, and hence the stock exchange and the government would likely work towards meeting the conditions required by MSCI,” he says.

In a report to clients, Hong Leong Investment Bank (HLIB) Research notes that Indonesia has been hit by a series of misfortunes – from MSCI’s warning and freeze to Moody’s outlook cut.

“In our opinion, the remaining three Asean nations ( Malaysia, Thailand and the Philippines) in the MSCI Emerging Markets (MSCI-EM) Index are poised to benefit from a realignment of foreign fund flows – with Malaysia standing out as its market is the largest of the trio, alongside its relative political stability.

“We believe that the concerns raised by MSCI on Indonesia are idiosyncratic in nature and unlikely to reverberate to Malaysia, given that the latter has the highest minimum free float requirement among Asean emerging markets,” it says.

Malaysia’s regulatory framework specifies a minimum public shareholding spread of 25%, which is also one of the highest levels, within the region.

In its report, HLIB Research says while it is still early in 2026, it feels that its thesis on plausible reversal of foreign fund flows into Malaysia is coming to fruition, with the year-to-date tally at RM1bil (as of Feb 4).

“In our view, the recent MSCI-triggered market rout in Indonesia – which will likely be exacerbated by Moody’s outlook cut – could potentially benefit the remaining three Asean countries in the MSCI-EM index as foreign fund flows realign,” it says.

“Of the trio, we believe that Malaysia stands to benefit the most considering that it is the largest Asean emerging market in the index, alongside having the lowest political risk premium.

“In comparison, the market capitalisation weight of the Philippines in the MSCI-EM index is barely a third of Malaysia’s size.

“We stay constructive on the Malaysian market where domestic policy strength has underpinned stronger-than-expected economic growth.

“ We maintain our FBM KLCI target at 1,790 based on 15.4 times 2026 price to earnings.”