MSCI proposes moving Indonesia out of emerging markets

What happened

MSCI said on Thursday 15 October that it is consulting on a proposal to move Indonesia's stock market from Emerging Market status to Standalone Market status. ^[1]

MSCI cited concerns raised by market participants: opaque shareholding structures, suspected coordinated trading and little evidence of enforcement. It said reforms such as disclosure of holders above 1 percent and a roadmap to a 15 percent minimum free float had not yet shown consistent results. It added that a move to Frontier Markets 'would not properly recognize the depth of the market problems.' ^[1]

Why it matters

A standalone status would exclude Indonesian shares from global indexes that passive funds track, forcing funds that follow or are measured against them to sell, Reuters reported. Goldman Sachs put passive outflows from a full removal at $5.6 billion, Reuters reported, while Bloomberg reported estimates of about $3 billion from Mirae Asset Sekuritas and mid-single-digit billions from Citigroup. ^{[5, 6, 7]}

Reuters reported that the status would put Indonesia beside Argentina, Lebanon, Palestine and Ukraine, as the only Asia-Pacific market in that group. ^[7]

How the market took it

The Jakarta Composite fell 11.6 percent on Friday 16 October, its steepest one-day fall since January 1998, Reuters reported. Bloomberg put the drop at nearly 12 percent. Reuters reported a 30-minute trading halt after a fall of 8 percent at the open. ^{[5, 6, 7]}

On Monday 19 October the index slid to a six-year low in early trading, Reuters reported, and IDX Channel reported a close 3.64 percent lower. ^{[5, 4]}

The Indonesia Stock Exchange cut its lower auto-rejection limit, the furthest below its reference price a share may be offered in a day, from 15 percent to 7 percent. The cut runs from Monday 19 October to Thursday 31 December, IDX Channel reported. The exchange's president, Jeffrey Hendrik, said it gives investors more time to weigh information. ^{[2, 3, 5]}

What settles it next

MSCI takes feedback until Friday 30 April 2027 and will announce its decision on or before Wednesday 30 June 2027. It said it expects to proceed unless the consultation shows clear evidence of material improvement. Until further notice it keeps its freeze on additions and on increases in Indonesian securities' weights. ^[1]

The exchange said the 7 percent limit will be reviewed as the market develops, IDX Channel reported. It also scheduled an online meeting with MSCI on Monday 19 October to ask for the reasons behind the proposal. ^{[2, 8]}

Who it reaches

MSCI Inc. (MSCI) is direct: it maintains the MSCI Indonesia Indexes and made the proposal. ^[1]