Erasing Negative Issues in Indonesia's Capital Market 2026

For nearly a year, the Jakarta Composite Index (IHSG) of the Indonesia Stock Exchange (BEI) has experienced severe shocks and for the first time faced a very different and arguably most ‘cruel’ decline factor. Viewed from the history of the IHSG’s development since the early days of the capital market, all the stories behind its movements fall into non-fraud factors but are merely a matter of performance.

Information on the IHSG began in 1990, two years after the October 1988 banking package and alongside the Sumarlin II shock (1991). At that time, Finance Minister JB Sumarlin ordered government institutions and state-owned enterprises to purchase Bank Indonesia Certificates that had been issued since the Sumarlin I shock in 1987. This was followed by the 1988 October Package, which eased the establishment of banks, allowed more bank branches, permitted the founding of rural banks and sharia banks, reduced the statutory reserve requirement to 2%, and imposed a tax on bank deposits related to the growth of Indonesia’s capital market.

Since 1990, the IHSG has fluctuated according to domestic and international conditions, culminating in 1998 when the economic situation led to the largest political event since 1965. Observations of the IHSG show that the largest declines were caused by the Southeast Asian economic crisis beginning with the weakening of the Thai baht, Korean won and Indonesian rupiah, the international oil crisis, fraud in subprime mortgages in America and Europe (unrelated to Indonesia), and the oil price crisis. During those periods, Indonesia did not experience shocks itself, only external influence, creating volatility.

At the same time, the number of companies listed on the BEI increased from 65 to 132 issuers, with 66 new issuers recorded in 1990. Share growth in 1995 reached 238 issuers, meaning an increase of 80.30% over five years, followed by around 290 issuers in 2000, 335 in 2005, 420 in 2010, 521 in 2015, 713 in 2020, and 967 issuers as of August 2026, with transaction growth naturally increasing through 2026.

All conditions appear normal, and if the chart since 1990 through 2026 is examined, the current decline still falls within normal bounds. However, in 2025 and 2026, the IHSG decline has been coloured by a factor different from the 1990-2024 period: a strong statement by Morgan Stanley Capital International (MSCI) downgrading its global investment recommendation for Indonesia’s capital market.

The impact continued until 11 August 2026, when the IHSG could only rise to 6,245.61 from the low of around 5,342 to 5,644 in the 3-5 June 2026 interval. The crucial question is whether the IHSG decline in 2026 is something special. Behind this decline, will the index rise again, and what pessimistic and optimistic indicators might influence the development of the IHSG in Indonesia in 2026?

Because of Fraud?

The question underlying the hypothesis that the IHSG decline is fraud is that over the past 30 years, Indonesia’s economy has not shown significant growth. Indonesia’s rating has fluctuated between BB and BBB according to S&P. In 1997 to 1998, MSCI recommended reducing the weight of Indonesia’s capital market due to the financial and political crisis. But why did the IHSG in Indonesia still experience a significant rise from 417.79 at the end of 1990 to 8,634.80 at the close of trading at the end of 2025, or 19.67 times? The number of listed shares rose from 120 issuers to 956 issuers at the end of 2025, or 6.97 times, so there was price growth of approximately 12.7 times the estimated average.

Meanwhile, the decline in shares from the end of 2025 to the low around June 2026 of approximately 38.22% became a frightening spectre for investors. Yet in the history of Indonesia’s capital market development, the IHSG has fallen by significant percentages several times. In the period 2005 to 2010, the IHSG fell from its highest point in 2007 at 2,745.83 by 50.6% to 1,355.41. In 2020, the IHSG fell to 3,937.63 on 24 March 2020 when Covid peaked, down from 6,300 at the start of 2020, or about 37.5%.

A preliminary assumption based on the data is that the sharp IHSG decline in 2026 was recorded as the impact of MSCI’s recommendation to reduce investment allocation in Indonesia to foreign investors, and the impact was extraordinary. After recalculation and careful review, statistically the IHSG decline is still considered normal. For the period 1 January 1990 to 17 August 2026, the trendline for the IHSG using exponential calculation shows a CAGR of 11.32% per year and 85.4%. This indicates that the current IHSG decline is still normal, although of course each individual share must be examined case by case both statistically and in terms of valuation. If it is stated that the IHSG decline was partly caused by the recommendation to reduce investment allocation in Indonesia’s capital market, that is only one factor; there is a larger factor, namely domestic investors.

The suspicion of the IHSG decline in 2026 is directed at fraud in share ownership, where the actual floating shares are far below the listed shares, leading to allegations that share prices are being manipulated. Another suspicion is a lack of trust in financial reports audited by public accounting firms.