Indonesia stocks suffer biggest daily slump since 1998 as MSCI weighs downgrade

Indonesian stocks experienced their largest single-day drop since 1998, plummeting more than 11%, as index provider MSCI suggested downgrading the country from emerging-market to standalone-market status. This news caused significant concern regarding potential foreign capital outflows. The Jakarta Composite Index, Indonesia's benchmark, hit a six-year low, while the rupiah weakened to record lows against the US dollar.

The sharp decline followed MSCI's announcement on Thursday to consult on reclassifying Indonesia's equity market due to persistent concerns over transparency, ownership structures, and suspected coordinated trading. MSCI stated that reforms had not yet shown sufficient improvements in market governance and enforcement. Trading on the Jakarta exchange briefly halted after falling 8% at the market open.

The index has lost nearly 40% of its value this year, making it the region's worst performer. Foreign investors recorded $4.7 billion in net equity sales from the Indonesian market. MSCI's consultation on this matter is set to continue until April 30, 2027, with a final decision due by June 30. The proposal could force passive funds tracking MSCI emerging-market indexes to sell Indonesian holdings, potentially worsening capital outflows.

Indonesia's stock exchange reported taking steps to improve transparency and market integrity, while CEO Jeffrey Hendrik sought further clarification from MSCI. However, the proposal unsettled investors already worried about declining market sentiment. Moody's and Fitch have also lowered Indonesia's credit-rating outlook to negative, citing concerns over policymaking credibility, adding another challenge for a market already struggling to attract foreign investment.