Hey Reader,
Indonesia is going through a phase of rapid and foundational stock market reform
- meanwhile, investor sentiment is at an all time low
Indonesia is the most interesting market in the broader Southeast Asian region today, and also the most misunderstood
On January 28 and 29, 2026, the Indonesia Stock Exchange (IDX) Composite lost roughly 84 bnUSD in market value over two trading sessions on the news that MSCI was reviewing Indonesia's emerging market classification and might downgrade the country to frontier market status. The index had touched an all-time high of >9,100 on January 20, then drifted lower into month-end, and over those two sessions on January 28 and 29 it fell by around 11% to c. 8,200, which triggered a 30-minute trading halt. The view that took hold across the global investor community then is what I still hear repeated in most of my conversations through Q2 2026. Indonesia is “uninvestable”.
After 15 years of investing in Southeast Asia, including a meaningful time on the ground in Indonesia, I think the consensus view has it backwards. Indonesia is going through perhaps the most aggressive corporate governance overhaul I have seen anywhere in the broader Southeast Asian region in over a decade, and most of the global investor community is busy looking the other way while it happens. Don’t get me wrong, the country is not out of the woods. In its June 2026 review, MSCI kept Indonesia in the emerging market index but extended the review to November 2026, wanting to see the reforms implemented consistently first. The free float compliance deadline is also still ahead. Even so, the long-term setup is more interesting than at any point in the last decade.
In the prior newsletter, we covered Indonesia as one of five Southeast Asian countries running simultaneous capital markets reforms, and I covered the broader regional reform context on the April 15, 2026, Bloomberg Intelligence Asia Centric podcast with John Lee. This letter goes deeper on Indonesia specifically because it is the country in the broader region we believe is the most misunderstood right now and the one currently presenting the most interesting investment window into a category of deeply undervalued high-quality national champions (leading a local consumer market of almost 300 million people) - a public market value-to-quality ratio simply not available in developed markets today. The interesting backdrop here is that for at least ten, perhaps twelve years out of the fifteen I've been living in the region, Indonesia was the outstanding investor darling (particularly foreign investors’ darling) in Southeast Asia. In Indonesia, I always received the most capital at the highest multiples across asset classes. It didn't matter if it was venture, growth, or public equities - Indonesia was usually 1st, 2nd and 3rd priority on regional investors' target lists. Today the market is completely in the doghouse - easily holding the 6th position out of Southeast Asia’s six largest economies.
Mohnish Pabrai: This will save you 10 years of bad investments. Source: My First Million
The Pabrai parallel - Indonesia is what Turkey was in 2018
Globally renowned and respected value investor Mohnish Pabrai made his first trip to Turkey in 2018 on a limb because the market was screening as extremely cheap. What he found was that the average Turkish public company cycled through its entire float roughly every 17 days, meaning the shareholder base was almost entirely day traders and gamblers, not patient holders. By comparison, Berkshire Hathaway's float turns over once every 10 years or more. In this context, the classic Buffett quote “The stock market is a device for transferring money from the impatient to the patient” comes to mind.
Pabrai's framing was that Turkey was a market where, in his own words, half of the winners at the racetrack had thrown away their winning tickets. He looked at Coca-Cola İçecek, the Turkish Coke bottler, alongside India's listed bottler of the same brand, Varun Beverages, with similar management standards and operating economics. The Turkish one was trading at roughly ten times earnings, while the Indian one was in the mid-30s to 50 times, so the same business was priced three to five times cheaper in Turkey. The airport comparison was even more extreme. TAV, the Turkish airport operator, was trading at around 3 to 4 times earnings, while comparable listed airports, including in India, changed hands at 50 to 70 times.
The biggest specific position he built was Reysas, a Turkish warehouse operator that he bought at roughly 3% of its liquidation value. The position is now approaching 100x in USD terms, even as the Turkish Lira collapsed by ~90% against the dollar over the holding period. Pabrai's reasoning was that a warehouse is land, paint, cement, and steel - every input is inflation-indexed and effectively currency-immune. He picked TAV Airports for a related reason - TAV's revenue is in Euros while its costs are in Liras, so the currency volatility actually helped the business rather than hurt it. The bigger relevant learning here from how Prabai did 100x in Turkey - if the valuation levels in the local stock market are beyond enough, you don't need a perfect macro or political backdrop to make a killing as an investor. In fact, you don’t even need an average macro/political backdrop if you are selective enough in your stock picking.
Indonesia has a similar kind of setup. The market is in the doghouse, valuations have collapsed. Most global investors I speak with have actively reduced or zeroed out their Indonesia exposure. The listed universe, though, still holds a long list of consumer goods, banking, real estate, and digital infrastructure businesses with leading market positions, enduring economics, strong moats and improving governance. The classification question, MSCI Nov reclassification or not, is several steps removed from whether a well-run Indonesian consumer staples business will compound free cash flow over the next 10 years. Pabrai bought Turkey in 2018 knowing inflation and currency would stay messy for years, and a number of the businesses he bought have compounded operationally regardless. The similar call applies here.
The political backbone of the response
The MSCI move in January 2026 was very specific. The index provider cited two concrete problems with Indonesia's market, accuracy of calculations around free float/significant owners among its listed companies and documented cases of price manipulation. Both are structural defects that affect the reliability of Indonesian equity prices for any institutional investor benchmarked against the MSCI Emerging Markets index.
What followed in Jakarta was faster and more direct than anything I have seen in the broader Southeast Asian region in a long time. Within days of the freeze, three of the most senior officials in the Indonesian financial market regulation resigned under pressure from the President's office, citing moral responsibility. They were Iman Rachman, the President Director of IDX; Mahendra Siregar, the Chairman of OJK (Indonesia's Financial Services Authority), and Inarno Djajadi, OJK's Chief Executive for Capital Market, Derivative Finance, and Carbon Exchange Supervision.
The kind of political-level intervention that happens when the country's leadership has decided that the cost of inaction has become bigger than the cost of disruption. The response did not stop at personnel either. In the same window, Jakarta pushed forward the two structural reforms that matter most for the long term, demutualizing the exchange and doubling the minimum free float, both of which I come back to below.
President Prabowo Subianto. Source: Wikimedia Commons (public domain)
More than any individual rule change in the reform package, the political instinct behind Jakarta's response is the most useful takeaway. When reform keeps moving even after it turns politically expensive, that usually tells you the intent behind it is structural and not cosmetic. Geopolitical shocks, the Iran war, and the broader volatility of early 2026 all would have given Jakarta credible cover to slow down. Jakarta did not take that cover, instead the reform calendar has kept moving forward.
In our meetings with Indonesian management teams and controlling shareholders over the past 12 months, the change in tone is hard to ignore. Indonesian controlling shareholders who, 3 to 5 years ago, would have politely deflected questions on minority shareholder treatment, free float, or board independence are now leading the discussion themselves. The conversation has moved from "why should we" to "how should we". It comes from the people running these businesses concluding that staying as they were is now the more expensive option.
To put the current valuation dislocations in the Indonesian stock market into perspective, at Endurance Capital, we normally target a minimum of 200% upside over 5 years in USD per investment (implicitly a min 25% USD IRR target). The investment cases we are now investing into in Indonesia offers some of the highest expected IRR profiles we've ever seen in our portfolio - just to give a handful of examples:
◼ Listed leading Indonesian multi-category retailer: expected 40% 5-yr USD IRR
◼ Listed leading Indonesian sports retailer & distributor: expected 29.8% 5-yr USD IRR
◼ Listed leading Indonesian hospital group: expected 31% 5-yr USD IRR
What the higher free float requirement does
The headline reform, raising the minimum free float from 7.5% to 15%, more than doubling the floor with phased implementation underway since February 2026, sounds like a technical rule change on paper. The amount of stock it forces into public hands is very large.
~270 of ~900 Indonesian listed companies need to comply or face delisting. Independent estimates put the volume of new shares that need to reach public shareholders at ~11 bnUSD. To put that figure into context, it is several times the value of new equity that reaches the Indonesian market in a normal year through IPOs and rights issues combined, and it is happening in a market with ~280 million people and a fast-growing middle class.
Jakarta, Indonesia
On April 2, 2026, OJK, IDX, and KSEI (Indonesia's Central Securities Depository) had jointly announced that 4 of the 8 agenda items required to address MSCI's market integrity and free float concerns were complete. The 15% free float requirement is the most visible of those completed items.
The math has three knock-on effects that are still under-appreciated by most of the global investor community:
◼ Institutional ownership thresholds. A wide range of global institutional investors have minimum free float criteria that historically excluded a large share of the Indonesian listed universe. More than doubling the free float floor brings many of these companies onto institutional screens for the first time
◼ Analyst coverage. Companies that pass institutional thresholds attract sell-side and independent analyst coverage. Analyst coverage across much of the Indonesian listed universe, especially in the mid-cap segment, has been thin, which has been a primary reason quality companies have traded at persistent discounts to fair value. Better coverage compresses these discounts over time
◼ Price discovery. A higher public float in genuine independent hands (i.e. not nominee structures) improves price discovery, reduces manipulation risk, and tightens spreads. All of these are foundational to attracting trading liquidity and long-term capital
The key wording here is "in genuine independent hands". We have seen across the broader Southeast Asian region that controlling shareholders facing free float reform tend to split into two camps, those who distribute genuinely to independent institutional holders and those who pursue paper compliance through nominee structures that technically meet the threshold without changing the ownership fundamentals. The early indication from Jakarta is that the proportion going the genuine route is notably higher than the regional baseline in similar past episodes, partly because of political pressure and partly because of the second reform, which we believe is the more consequential one over the long run.
Why demutualization is the structurally bigger reform
The reform that has received the least global attention is the one we believe will have the most enduring impact. IDX is pursuing demutualization, separating the ownership of the exchange from the interests of its member firms.
Trading activities at the Indonesia Stock Exchange (IDX). Photo Courtesy of IDX
Up until now, IDX has been owned by its members, the same brokerages whose trading activity it regulates. In practice, this meant the exchange had a structural incentive to look the other way on governance compliance, because its owners were the very firms most likely to be negatively affected by stricter enforcement. Demutualization breaks that dynamic - for the first time ever, IDX now has an institutional reason to enforce standards rather than accommodate them.
This playbook drove the long re-rating of more mature exchanges in the developed world. The London Stock Exchange (LSE) demutualized in 2000, and the New York Stock Exchange (NYSE) followed in 2006. Australia, Singapore, and Hong Kong all moved through demutualization around the turn of the century. In each case, the structural separation of exchange ownership from member interests became the foundation on which the next 10 to 15 years of governance enforcement and minority shareholder protection were built. Indonesia is now joining that group of more institutionally credible market infrastructures.
For a long-term investor on the outside, demutualization is the kind of structural reform that does not show up in any single quarterly result or index rebalance. It changes the underlying incentive architecture of the entire market in a direction that durably favors minority shareholder protection. Over 5, 10, 15 years, this foundational improvement around the Indonesian public market is set to compound. The old Charlie Munger quote “Show me the incentives, and I’ll show you the outcome”, comes to mind…
What MSCI did at country level mirrors what we do at company level
And saluted to above, 3-5 years ago, Indonesia was the outstanding darling of every global investor looking at Southeast Asia. The 280 million-person consumer market, the rising middle class, and the long growth runway all attracted institutional capital at premium valuations. Today, Indonesia has fallen deeply out of favor with global investors. Most European, American and Asian investors I speak with have actively reduced or zeroed out their Indonesian exposure, and the valuations have collapsed accordingly. A market falling out of favor while its underlying structural quality is improving is precisely the entry setup I look for - both with Endurance Capital and privately - and Indonesia is exactly that today.
At Endurance Capital, we have been studying listed Indonesian companies for years. The mechanism MSCI used at the country level, frank and well-researched discussions combined with credible external pressure tied to concrete consequences, is what we apply at the company level. We identify a governance shortcoming at a portfolio company, communicate it clearly to the board and the controlling shareholder, and tie the engagement to specific outcomes. There is a difference in terms of proximity however. We are in the boardroom with management, we know the capital allocation history, and we know the shareholder structure. MSCI works from index methodology and aggregate data - both approaches produce results. Company-level collaborative activism is simply a more precise and more sustained version of this approach to catalyzing and driving change.
In Chapter 5 of Mind the Gap, I described how Southeast Asia's listed and private markets often work through "natural leverage" built into commercial arrangements rather than relying on slow (and many times teethless) formal enforcement. A similar observation applies to governance reform. Companies behave according to whatever incentive architecture surrounds them, and the MSCI episode moved Indonesia's in the right direction.
The MSCI threat has made the cost of poor governance concrete and measurable, billions of USD in potential passive outflows, and that produced more reform in 8 weeks than in the previous 8 years. It is hard to overstate how unusual a pace like that is for a country's regulatory infrastructure.
The overarching takeaway of the Endurance Capital’s Jakarta team has been that the controlling shareholders responding most genuinely to the free float requirement tend to be the ones who had already started to behave like long-term stewards of the listed entity rather than holders of family ownership through it. The companies behind those shareholders re-rate first. They were already well-run, already compounding free cash flow at attractive rates, already disciplined on capital allocation. They were just discounted because the broader Indonesian market's governance reputation kept institutional capital underweight and a lower free float capped daily trading liquidity, in turn excluding much of the institutional capital interest. As the overall market improves its standards, these companies attract institutional flows, analyst coverage, and price discovery for the first time.
The opposite type of company - i.e. controlling shareholders pursuing paper compliance through nominees, gets more and more exposed over time as the IDX no longer has a structural incentive to overlook this. Long term active shareholders, conducting their due diligence by speaking to “everyone around the company” (customers, competitors, suppliers, ex management, shareholders, board, etc) and with proximity to the boardroom can tell these two categories apart well before the broader market does. The genuine compliers re-rate first, and the difference appears in returns over time.
Why this still requires patience, conviction, and stomach
Indonesia is not out of the woods. MSCI has extended its decision to November 2026 because it wants to see sustained implementation progress around the reforms announced, and it has kept Indonesia under review with a possible downgrade consultation still on the table if the reforms do not stick. Indonesia could still get a classification surprise either way in November, although my personal conviction is that the market will not be downgraded, given the speed of the reform reaction and the implementation progress so far. Some companies will find genuine ways to comply while others will not, and currency volatility, political surprises, and broader emerging market drawdowns are all in play across the next 6 to 12 months.
Evening scene of a busy Jakarta street with pedestrians, skyscrapers, and urban life
The argument for stepping into Indonesia today is the combination of quality across the listed universe and the depth of the discount, both of which create an entry setup that does not appear often, even with the uncertainty intact.
Across many of the quality Indonesian listed companies we track, the discounts to fair value are wider than I have ever seen in over a decade and a half in the region. ~280 million people, a rising middle class (with decades of growth ahead), leading listed companies in consumer goods, banking, health, and digital infrastructure with genuinely enduring economics, and a governance trajectory improving faster than at any point I can remember in this market. For long-term capital, that combination is rare and highly attractive.
The argument for believing in the discount compressing over the medium term comes down to primarily three things:
◼ The market is already priced as if a downgrade is coming, which makes the setup asymmetric for the patient owner. If Indonesia keeps its emerging market status in November, the passive outflows the market has been bracing for turn into inflows instead. If it is downgraded, most of that is already in the price. Either way, the long-term owner who is not forced to trade the index is not the one carrying the risk.
◼ The free float deadline pulls capital forward. Controlling shareholders that are going to distribute genuinely have a hard timeline to do so. The distribution itself creates the entry windows, because new shares hitting the market tend to compress prices in the short term until long term holders absorb them. This excess supply serves as a unique entry opportunity, not only in terms of depressed valuations, but also in terms of larger supply availability that can open up for building a meaningful stake for influence by a long-term patient and active shareholder. These windows of valuation discounts tend to close quickly once the overhang of supply clears.
◼ A new wave of quality IPOs is on the way. IDX is targeting 50 new IPOs in 2026. A reform-driven IPO wave brings a new layer of investable mid-cap exposure.
We have seen similar dynamics play out in Vietnam, where the seven years of reform around the FTSE upgrade produced re-ratings in the best-governed listed companies years before the reclassification itself was confirmed. Indonesia is, in many ways, at the equivalent inflection point but with much larger absolute numbers in play.
The cost of staying structurally underweight Indonesia
Above all else, the Indonesia MSCI episode is an accountability story. External accountability, when it produces structural change, is one of the most powerful value-creation mechanisms available in emerging markets. It is also one of the most underestimated, because it does not appear in any traditional macro analysis and only rarely fits into the typical quarterly review process of a global investor.
The companies that become attractive first are those that were already well-run but traded at a discount because of the broader market's governance reputation. As the overall market lifts its standards, these companies re-rate, institutional capital justifies allocations, analyst coverage expands, and price discovery improves. The free float expansion alone means more of these companies will appear on institutional screens for the first time, and the demutualization compounds that effect over time by changing the incentive architecture of the exchange itself.
Pull up your Indonesia allocation in your portfolio. For most family offices and institutional investors I speak with through 2026, it is at or near zero. If that is true for yourself as well, it is worth asking whether that reflects a considered view of where Indonesia is heading over the next 5 to 10 years, or just an echo of the recent market headlines. The November MSCI review will sort the classification question. The much bigger question for a long-term portfolio is whether you are comfortable being structurally underweight a ~280 million people consumer economy at the point where its public company governance regulations are improving faster than at any time I can remember.
We have always been willing to invest where others see complexity (in essence, you will get paid a “complexity premium” in returns), as long as we can engage directly and governance is heading the right way. Indonesia is moving in that direction faster than it has in years. However, I would not pretend the path is certain. The market can stay in the woods for a long time, and no one can promise it will re-rate on any set timeline. What I can say is that the discount is deep, the underlying companies are market leaders with enduring economics, and the governance direction is clear enough that staying on the sidelines no longer makes sense.
We have allocated accordingly.
Christopher B. Beselin
Investing, compounding & exiting
Christopher B. Beselin - is the Chief Investment Officer of Endurance Capital. The views & opinions expressed in this newsletter is for informational and educational purposes only and should not be considered investment advice.
PS. If you are a qualified professional investor and want to think through how to structure long-term Southeast Asia exposure with an active ownership lens - feel free to schedule a 1-to-1 emerging market strategy call with Christopher B. Beselin via this link. DS.