The proposed reclassification, which follows a consultation period ending April 30, 2027, has triggered a massive sell-off. With the index already down 43% year-to-date, the market is currently ranked among the world’s worst performers. Goldman Sachs analysts estimate a full removal could spark $5.6 billion in passive outflows, with an additional $2.7 billion at risk if FTSE Russell follows suit.

In a defensive maneuver, the Indonesia Stock Exchange slashed the maximum daily decline for individual stocks from 15% to 7% for the remainder of the year. Despite these curbs, analysts at CIMB warn the fallout may extend beyond equities, potentially chilling foreign direct investment and intensifying capital flight from other local assets. Gareth Leather of Capital Economics noted that the severity of the MSCI warning caught investors off guard, as the index provider suggested that even a downgrade to frontier-market status might fail to capture the depth of current transparency and investability concerns.