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

The risk of a downgrade in Indonesia’s market status has once again become a concern for investors after S&P Dow Jones Indices (S&P DJI) placed Indonesia on its 2027 Watchlist.

In an official announcement made on Tuesday US time (or early Wednesday Indonesia time), S&P DJI noted that while Indonesia still holds emerging market status, it has entered a monitoring list with the potential for special measures or a transition to frontier market status. The issues cited relate to share ownership transparency, disclosure, and the subsequent impact on market liquidity.

Following the announcement, the Jakarta Composite Index (IHSG) was observed to weaken by more as much as 1%, reaching the 5,987 level during the first trading session.

However, regarding passive funds based on S&P/Dow Jones indices, the potential pressure for capital to exit Indonesia appears relatively non-extreme or quite limited. Based on an investigation 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/US$.

This figure does not represent the total Assets Under Management (AUM) of the indices, but rather the estimated value of Indonesian stocks/instruments held within the relevant S&P/Dow Jones ETFs/ETPs. If only the 12 primary products mentioned are calculated, the total exposure is approximately Rp8.29 trillion. When adding borderline products such as GMF and ASDV/ZPRA, each contributing around Rp83 billion, the total rises to approximately Rp8.46 trillion. This list is estimated to cover about 95% of the material public S&P/Dow Jones ETF/ETP exposure to Indonesia.

Analysing Potential Outflow

In a worst-case scenario, if all material S&P/Dow Jones products with Indonesian exposure were forced to exit simultaneously, the maximum potential outflow would be in the range of Rp8.3 trillion to Rp8.5 trillion. However, this figure should be read as a gross ceiling (the worst case) rather than a base case, as not all products in the table would automatically be required to sell Indonesian stocks simply because a country’s status changes from emerging to frontier.

The most sensitive products are emerging market ETFs, such as SPEM, DVYE, SEDY/IEDY, EWX, EDIV, GMF, and SPYV/EDVD/EMDV. From this group alone, the potential funds directly affected are in the range of Rp7.5 trillion to Rp7.7 trillion.

On the other hand, a downgrade to frontier status could also potentially create inflows from frontier market products, though the offset is relatively small. The most directly identified S&P/Dow Jones frontier product is the Xtrackers S&P Select Frontier Swap UCITS ETF 1C (XSFD), which tracks the S&P Select Frontier Index. With an AUM of approximately US$130 million to US$150 million and a country weight limit of 30% within the S&P Select Frontier, the maximum potential inflow to Indonesia is estimated at only about US$39 million to US$45 million, or roughly Rp700 billion to Rp810 billion at an exchange rate of Rp18,000.

Consequently, after accounting for potential inflows from frontier indices, the estimated net outflow from S&P/Dow Jones emerging market products stands between Rp6.7 trillion and Rp7.0 trillion.

Meanwhile, thematic products such as clean energy, metals, timber, and global dividends may not necessarily exit immediately. Some thematic indices depend more on sector criteria, liquidity, listings, and eligible universes rather than solely on emerging/frontier status. Therefore, funds such as ICLN, INRG, METL, WOOD, and SCHY might not be fully impacted, depending on the final changes to the methodology.

In terms of coverage, this list is estimated to include 90% to 95% of the material public S&P/Dow Jones ETF/ETP exposure to Indonesia. This is because the three largest products—SPEM, SEDY/IEDY, and DVYE—already contribute approximately Rp6.92 trillion, or more than 80% of the total primary exposure.

A crucial note is that S&P DJI has not automatically downgraded Indonesia’s status; Indonesia has only entered the 2027 watchlist. S&P DJI stated it may apply special measures if conditions worsen, and if the issues are not resolved within one year after special measures are implemented, Indonesia’s classification status will be reassessed during the next annual review.

This means that while the risk of outflow exists, it does not yet constitute immediate forced selling. From the perspective of S&P/Dow Jones products, the passive pressure currently observed is also significantly smaller than the risk posed by other global index providers with larger benchmark assets, such as MSCI or FTSE Russell.