MSCI considers Indonesia index downgrade as consultation process begins

Jakarta - MSCI, the global stock market index provider, is poised to strip Indonesia of its emerging market designation, according to a report. This decision could lead to capital outflows as Indonesian equities have been among the worst performers globally this year. The downgrade to emerging market status was initially threatened by MSCI in January due to issues with ownership transparency and trading behavior.

However, MSCI has now stated that even a downgrade to frontier status would not adequately reflect the gravity of the problems facing the Indonesian market. Consequently, the country is now on a trajectory towards standalone status, meaning its stocks will be excluded from global indexes used by trillions of dollars in passive investments.

MSCI cited ongoing concerns about market dysfunction as the reason for this decision. The Indonesia Stock Exchange acknowledged the need for reforms to enhance transparency and integrity in the capital market but expressed reservations about a downgrade to frontier status properly capturing the severity of the market issues. While Indonesia's Financial Services Authority and Finance Minister have yet to comment on the MSCI announcement, the company plans to consult market participants on the downgrade and potentially reclassify Indonesia to standalone status unless there are clear signs of improvement in governance and market functioning.