S&P DJI Places Indonesia on Watchlist, What Are the Potential Impacts?

Jakarta, CNBC Indonesia - The risk of a downgrade to Indonesia’s market status has once again captured investor attention after S&P Dow Jones Indices (S&P DJI) placed the country on its 2027 Watchlist. In an official announcement on Tuesday US time, or early Wednesday morning Indonesian time (7-8/7/2026), S&P DJI noted that Indonesia retains its emerging market status but has been placed on a watchlist with the potential for special measures or reclassification to frontier status. The issues cited relate to share ownership transparency, disclosure, and their impact on market liquidity. Following the announcement, the Jakarta Composite Index (IHSG) opened down more than 1%, touching a level of 5,987 in the first trading session. However, the potential outflow pressure from passive funds tracking S&P/Dow Jones indices appears relatively limited. Based on a review of public ETF/ETP products using S&P DJI indices, the estimated material exposure to Indonesia is in the range of Rp8.3 trillion to Rp8.5 trillion, assuming an exchange rate of Rp18,000 per US dollar. This figure represents the estimated value of Indonesian instruments held within these ETFs, not the total assets under management. If only the 12 most material products are considered, the total exposure is approximately Rp8.29 trillion. Including borderline products adds roughly Rp83 billion each, bringing the total to around Rp8.46 trillion. This list is estimated to cover over 95% of the public ETF/ETP exposure to Indonesia linked to S&P/Dow Jones indices. In a worst-case scenario where all material products are forced to divest their Indonesian holdings simultaneously, the maximum potential outflow would be in the range of Rp8.3 trillion to Rp8.5 trillion. However, this is considered a gross ceiling rather than a base case, as not all products would be required to sell immediately upon a status change. The most sensitive products are emerging market ETFs, which account for a potential direct impact of around Rp7.5 trillion to Rp7.7 trillion. A downgrade to frontier status could also generate some inflows from frontier market products, though the offset is relatively small. The primary frontier product identified is the Xtrackers S&P Select Frontier Swap UCITS ETF 1C, which tracks the S&P Select Frontier Index. With assets under management of around US$130 million to US$150 million and a 30% country cap, the maximum potential inflow to Indonesia is estimated at only US$39 million to US$45 million, or approximately Rp700 billion to Rp810 billion. After accounting for this potential frontier inflow, the estimated net outflow from emerging market products is in the range of Rp6.7 trillion to Rp7.0 trillion. Thematic products, such as those focused on clean energy, metals, timber, and global dividends, may not be forced to divest immediately, as their inclusion criteria are often based on sector and liquidity factors rather than solely on country classification. It is important to note that S&P DJI has not automatically downgraded Indonesia, which has only been placed on the 2027 Watchlist. The index provider stated that special measures could be applied if conditions worsen, and if the issues remain unresolved within one year of such measures, the country’s classification will be assessed in the subsequent annual review. Therefore, while the risk of outflow exists, it does not yet constitute forced selling, and the passive pressure from S&P/Dow Jones products is currently far smaller than the potential risk from other major index providers with larger benchmarked assets, such as MSCI or FTSE Russell.