Indonesian stocks dive 11% as MSCI weighs market reclassification

Jakarta Composite Index plummeted more than 11% on Friday, marking its steepest decline since early 1998 and lowest level since 2020. This sharp drop occurred after index compiler MSCI announced it was no longer fitting to classify Indonesia as an emerging market. The US firm expressed concerns over ongoing opacity in shareholding structures and coordinated trading behavior impacting price information.

Despite Jakarta authorities completing reforms in April, MSCI stated that sufficient progress had not been consistently observed across the Indonesian equity market. Authorities in Jakarta had hoped to avoid the downgrade, fearing it would deal a blow to government efforts to revive Southeast Asia's largest economy and significantly impact investment decisions.

However, MSCI concluded that Indonesia's continued classification as an Emerging Market was no longer appropriate and initiated a consultation to propose a reclassification as a Standalone Market. A Standalone Market classification would not adequately reflect the depth of market problems, according to MSCI. The Jakarta Composite Index fell 8% at the opening bell, prompting a trading halt before resuming at an 11.1% drop, its sharpest decline since early 1998 and the lowest point since 2020.

MSCI, based in New York, produces international indexes used by investors as benchmarks to balance their portfolios. Its flagship emerging markets index, containing over 1,200 companies with a combined market capitalization exceeding US$10 trillion, carries significant influence over investment decisions. Fund managers worldwide closely monitor MSCI's decisions regarding country inclusions or exclusions, as they can trigger adjustments to their portfolios.