Indonesian stocks dive 11% as MSCI weighs market reclassification

Indonesian stocks plummeted more than 11% on Friday as the MSCI index compiler announced it would no longer classify the country as an emerging market, prompting fears of a mass exodus of foreign investment. The US firm had raised concerns earlier this year about opacity in shareholding structures and coordinated trading behavior that affected price information.

Despite authorities completing reforms in April to avoid the downgrade, MSCI concluded that sufficient progress had not been consistently observed across the Indonesian equity market. Authorities acknowledged significant concerns about market dysfunction, including suspected coordinated trading and lack of enforcement, leading MSCI to consider reclassifying Indonesia as a standalone market.

A standalone classification could potentially force investment funds tracking MSCI's emerging market indexes to sell Indonesian holdings, as no Asian markets currently hold that designation. The Jakarta Composite Index fell by 11.1% at the open, the steepest drop since early 1998 and its lowest point since 2020. MSCI, a New York-based firm, produces international indexes that impact global investment decisions, with its emerging markets index containing 1,200 companies and a market capitalization exceeding US$10 trillion.