Indonesian stocks suffered their steepest one-day fall in nearly three decades on Friday after index provider MSCI proposed moving the country to “standalone” market status, below its current emerging-market classification.
The move raised the prospect of billions of dollars in outflows.
Worst Day Since 1998
The Jakarta Composite Index fell as much as 11.57%, its worst single-day decline since January 1998.
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The market opened almost 8% lower, triggering a 30-minute trading halt. Major lenders were among the worst hit, with Bank Central Asia, Bank Rakyat Indonesia and Bank Mandiri each down nearly 15%.
The rupiah weakened by as much as 0.8% to 18,070 against the dollar, close to its record low of 18,190, before recovering some losses, Reuters reported.
With Friday’s losses, Indonesian equities are down nearly 40% this year, the worst performance among major markets globally.
Why MSCI’s Proposal Matters
MSCI cited persistent concerns over market transparency, concentrated share ownership and trading practices. The proposal goes beyond the downgrade to frontier status that it had earlier threatened.
Standalone is a category below frontier, currently home to markets such as Argentina, Lebanon, Palestine and Ukraine.
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Indonesia would be the only Asia-Pacific market in the group and its largest economy, at more than twice the size of Argentina’s.
Billions At Risk
The concern is forced selling. Funds that track MSCI’s emerging and frontier indices would have to dump Indonesian holdings if the country is removed. UBS estimates around $4 billion of passive outflows, with active investors potentially pulling another $15 billion.
Foreign investors have already sold a net $4.7 billion of Indonesian stocks this year. The market has lost more than $350 billion in capitalisation since MSCI froze certain index changes in January, including about $60 billion on Friday alone.
Regulators Under Pressure
The announcement pushed Indonesia’s Financial Services Authority to disclose penalties linked to alleged trading violations involving Dian Swastatika Sentosa, Barito Renewables Energy and Petrindo Jaya Kreasi.
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Regulators alleged coordinated price manipulation in the first case, and IPO share allocations meant for parties tied to controlling shareholders in the other two. Senior economic minister Airlangga Hartarto questioned why MSCI had not raised the standalone proposal at a meeting earlier this week.
The Indonesia Stock Exchange said it would seek clarification.
What Next
MSCI will consult market participants until April 2027, unless it sees clear evidence of improved governance.
The episode adds pressure on President Prabowo Subianto’s government, after Moody’s and Fitch revised their sovereign-rating outlooks negatively earlier this year.
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