The Indonesian stock market is experiencing a sharp decline. This is due to Morgan Stanley Capital International (MSCI) raising concerns about the transparency of Indonesian listed companies, restricting their inclusion and promotion in its indices, and warning that it may reconsider Indonesia's emerging market status if there is no improvement.
As of 12:32 p.m. local time on the 29th, the Jakarta Composite Index (JKSE) had fallen by 492.13 points (5.91%) from the previous trading day to 7,828.42. During intraday trading, it dropped as low as 7,481.988. The previous day, the index had plunged 7.35%, falling from 8,980.23 to 8,320.56.
MSCI's warning triggered the market downturn. On the 27th (local time), MSCI stated that the ownership structure of Indonesian listed companies remains persistently opaque. The company also expressed concerns about the possibility of systematic and coordinated trading activities that could hinder fair price formation.
MSCI announced that it would temporarily suspend certain index changes. In particular, it warned that if there is no improvement in transparency by May, it could reduce the weighting of all Indonesian securities in the emerging markets index and reclassify Indonesia from an emerging market to a frontier market.
Following MSCI's warning, global investment banks also issued negative outlooks on Indonesia. Goldman Sachs downgraded its investment rating on Indonesia to underweight. The bank also explained that if the market status is downgraded, up to $13 billion could flow out of the country. UBS also pointed out that until there is a clear regulatory direction and the results of MSCI's reassessment are released, the overall market is likely to face a continued overhang.
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