Indonesia stocks post biggest single-day drop in nearly 3 decades

Indonesia's stock market experienced its largest one-day drop in nearly three decades on Friday. The sharp decline came after MSCI, a major stock market index provider, announced it would remove Indonesia from its emerging market classification. This decision, announced a month before a scheduled review, sent shockwaves through Jakarta shares and left investors reeling.

The benchmark index fell 11.57%, marking its worst single-day loss since 1998. The Indonesian rupiah currency also weakened significantly, falling as much as 0.8% to 18,070 per dollar before recovering somewhat. The market's struggles have been ongoing since a January freeze in MSCI's indexes, with the country's stock market losing over $350 billion in capitalization, with roughly $60 billion wiped out on Friday alone.

MSCI cited insufficient reforms to address issues such as market opacity and trading behavior as the primary reasons for its decision. While the market has taken steps to enhance transparency, MSCI believes these measures are insufficient to warrant retaining its emerging market status. The move could force passive investment funds to sell Indonesian stocks, potentially triggering billions of dollars in outflows.

The Indonesian government has been under pressure to address market issues, with foreign investors already netting $4.7 billion in sales of Indonesian stocks in 2026. Airlangga Hartarto, Indonesia's senior economic minister, expressed concerns about the timing of MSCI's announcement and the lack of discussion on downgrade options during recent meetings.

The move has raised questions about the market's investability and the pace of reforms in Indonesia.