JAKARTA -- Indonesia's financial markets remain under pressure, with stocks, government bonds and the rupiah facing sustained selling due to concerns over a potential MSCI downgrade.

The yield on 10-year government bonds rose above 7.5%, its highest level since October 2022, as prices fell.

A government bond auction on Oct. 27 totaled 31.09 trillion rupiah, down 52.1% from the 64.86 trillion rupiah sold at the previous auction.

The sell-off reflects investor unease over index provider MSCI's proposal to reclassify Indonesia's equity market from emerging to stand-alone status, meaning the country's shares would be removed from MSCI indexes.

In addition to capital outflows from stocks, concerns about Indonesia's fiscal situation are also driving investors away from its bonds.

The Jakarta Composite Index fell about 1.3% in early trading on Wednesday, extending losses from earlier in the week. On Oct. 19, the index hit 4,996.61, a six-year low.

Felix Darmawan, an economist and fixed-income analyst at BCA Sekuritas, said in his daily report, "Investors are looking for policy certainty and the implementation of capital market reforms in line with MSCI's recommendations" to restore market confidence.

As a result of the recent outflows, the rupiah weakened to 18,180 per dollar, bringing its decline so far this week to about 0.55% and putting it within touching distance of June's record low.

Uncertainty over the Indonesian economy has also contributed to the rupiah's fall. Erwin Gunawan Hutapea, Head of Bank Indonesia's monetary and securities asset management department said in an announcement on Wednesday, "The rupiah and regional currencies are still being influenced by uncertainty over the resolution of the Middle East conflict."

He also added: "Overall, the rupiah's movement remains in line with regional currencies. On a monthly basis, the rupiah has weakened by 1.15%. Meanwhile, foreign exchange reserves remained at a healthy level of $146.3 billion at the end of September 2026."

President Prabowo Subianto struck a defiant tone toward the index provider last week, saying at a cabinet meeting, "I would like to tell MSCI, Indonesia is not afraid of anyone and will not be deterred." Wijayanto Samirin, chief adviser at the Paramadina Public Policy Institute, described the remarks as excessive nationalism that could further unsettle markets. "It's not a matter of fear or courage, but of trust or distrust," he said during a webinar last weekend.

In the week following MSCI's announcement of a potential downgrade, several big Indonesian companies announced or moved forward share buybacks in an effort to calm the markets. Private lender BCA extended its latest round of repurchases through Oct. 23, while BRI, Indonesia's largest state-owned lender, announced a program worth up to 1 trillion rupiah running from Oct. 22 to Jan. 21 next year. Telkom Indonesia said it planned to accelerate an existing buyback program, with more than 3 trillion rupiah remaining in its approved allocation.

The announcements coincided with a recovery in share prices, with the JCI gaining 4.9% last week. Foreign investors nevertheless sold a net 6.67 trillion rupiah of shares during the week.

The Financial Services Authority's chief capital market supervisor, Hasan Fawzi, said the rebound offered grounds for optimism. The regulator, known by its Indonesian initials OJK, will support the recovery by improving access to information to help investors assess corporate fundamentals and risks objectively, with the aim of ensuring orderly, fair and efficient trading, Fawzi said.

IDX has also announced an overhaul of its market surveillance procedures and the expansion of its index committee as it seeks to rebuild investor confidence. The new approach will enable IDX to issue fewer unusual market activity notices, and instead directly announce investigations when it detects signs of price manipulation.

Such announcements will identify the stock and trading period under investigation, including suspected activity involving parties operating through multiple brokerages. "We can restrict or suspend individual securities accounts during investigations, which is expected to bring more sustained liquidity in the market with a more effective surveillance," said Hendrik on Monday.

Samirin, of the Paramadina Public Policy Institute, said the measures taken by IDX and the authorities were the bare minimum needed to address MSCI's concerns, which include higher free-float requirements. Implementation remained slow, he said.

However, he added that other developments threatened to undermine confidence in Indonesia's market. These included sovereign wealth fund Danantara's plan to acquire a stake in IDX, raising questions about the exchange's independence.

Samirin questioned whether the proposed takeover of IDX by Danantara complied with principles of transparency and fairness. "These developments complicate our market situation," he said.