Indonesian stocks hit six-year low: Jakarta index falls 5.1% on MSCI 'standalone' threat

Indonesian stocks fell to a six-year low on Monday: the Jakarta Composite Index dropped 5.1% to 4,923.26, its weakest since October 2020, after touching 4,907.37 during the day. It had already crashed 11.6% on Friday, its steepest one-day fall since 1998, Reuters reported, carried by Yahoo Finance.

Why Indonesia stocks are falling: the MSCI warning

The trigger is MSCI, whose indexes decide where trillions of dollars of global funds go. In January it threatened to cut Indonesia from emerging to frontier market status over unclear share ownership and trading behaviour. On Friday it said the lack of progress meant even that would not reflect how serious the problems were, and that it was considering moving Indonesia to standalone status, the Jakarta Post reported.

Standalone would put Indonesia alongside markets such as Lebanon and Zimbabwe and could mean its removal from global indexes next year. MSCI's consultation closes on 30 April 2027, with a final decision by 30 June 2027, and a freeze on some index changes for Indonesian shares stays in place meanwhile.

The numbers

Moody's and Fitch both cut Indonesia's sovereign rating outlook to negative earlier this year.

How Jakarta is responding

The stock exchange cut its lower auto-rejection limit, the most a share's price may fall in one day, to 7% from 15% after a weekend meeting between the regulator and market players. The Financial Services Authority (OJK) on Friday fined parties linked to alleged manipulation of three companies' shares a total of 2.1 trillion rupiah ($116.4 million).

Analysts want more. "The fines are a positive move, but there needs to be concerted action to stamp the authority of the OJK," Angus Mackintosh of Aletheia Capital told the Jakarta Post. Goldman Sachs said "the burden of proof has shifted" to Indonesia to show reforms are actually happening. Aninda Mitra of BNY Investments said foreign holdings had already shrunk so far that "there may not be much more downside from here".

Pakistan has been here before

Pakistan's own market went through an MSCI downgrade: in September 2021 MSCI announced it would move Pakistan from emerging to frontier status from November 2021, because no Pakistani shares met the emerging-market size and liquidity tests any more. Indonesia's case is different: MSCI's complaint there is about transparency and market abuse, not size.

Indonesia's slide adds to a rough month for Asian markets, which we covered in last week's Asian stocks roundup. Follow the KSE-100 on our PSX index page.