Fund managers in Asia are steering clear of Indonesia and India’s equity markets amid sharply deteriorating investor sentiment, reflecting distinct underlying challenges in each country’s financial landscape. A recent survey conducted by Bank of America on October 13 identified the two economies as the least favored in the region, with Indonesia and India grappling with significant market declines and currency pressures in 2026.
Indonesia’s Jakarta Composite Index has plummeted 39 percent year-to-date, marking it the world’s worst-performing stock market this year. Concurrently, India’s Nifty 50 Index has declined by 12.7 percent, signaling its first annual loss after a decade of continuous gains. Although both nations exhibit certain hallmarks of traditional emerging market crises—such as depreciating currencies, large-scale foreign capital outflows, rising interest rate pressures, and challenging external conditions—their difficulties arise from fundamentally different causes.
Indonesia’s financial stress is primarily domestic and structural, attributed to its incomplete reforms aimed at enhancing policy predictability and credibility. On October 15, index provider MSCI initiated a consultation on a proposal to reclassify Indonesian stocks from “emerging market” to “stand-alone” status, effectively grouping it alongside countries such as Ukraine and Lebanon. This follows earlier considerations to downgrade Indonesia to the riskier frontier market category, a move MSCI argued would understate the severity of Indonesia’s market issues.
The index provider cited persistent opacity in shareholding structures, suspected coordinated trading, and a lack of effective regulatory enforcement as key concerns. Indonesia’s stock market experienced its steepest daily drop since the Asian financial crisis of 1997-98 on October 16. The country’s challenges are deep-rooted, including weak governance frameworks, heavy state intervention, democratic backsliding, and politicization of economic policy, which have collectively eroded investor confidence. Additionally, the dominance of family-held firms restricts liquidity by limiting the availability of freely traded shares. Despite Indonesia’s resource wealth and economic growth, especially from energy transitions, its capital market remains underdeveloped and heavily dependent on foreign investment.
The MSCI proposal has intensified worries regarding the Indonesian rupiah, interest rates, economic growth prospects, and public finances, with analysts warning of potential harsher reactions from bond markets.
India’s market difficulties stem from external factors, reflecting broader global economic dynamics rather than internal policy failures. The Indian rupee has depreciated against the US dollar for nine consecutive years, reaching historic lows and increasing the cost of imports while complicating current account deficit financing. However, the country’s relative decline in investor appeal is driven less by economic mismanagement and more by external pressures including the lingering effects of trade tensions and a global energy crisis.
Investors are also shifting focus toward technology-oriented markets tied to the artificial intelligence boom, an area where India’s market is perceived to lack exposure. According to asset manager Manesh Dangi, growth prospects and earnings trajectories in the US and East Asia now appear more attractive, drawing capital away from India despite its stable macroeconomic fundamentals.
India, however, has demonstrated resilience amid these challenges. Inflation and current account deficits remain manageable, and domestic institutional investors have actively supported the market. This year has also seen robust initial public offering activity. Prime Minister Narendra Modi’s administration has been credited with fostering macroeconomic stability rather than rapid growth, a foundation that is helping India weather ongoing volatility.
These divergent experiences underline the complexity of emerging markets in Asia, highlighting Indonesia’s need for structural reforms to regain investor trust, while India navigates external headwinds backed by solid domestic policy frameworks.