Indonesian stocks slide to six-year low as MSCI 'standalone' warning weighs

Indonesian stocks plummeted to a six-year low on Monday, with MSCI warning of potential expulsion from its global indexes. The Jakarta stock market had already dropped 11.6 percent on Friday. The warning weighed heavily on investor sentiment, drawing attention to Jakarta's efforts to address MSCI's concerns. If Indonesia were to be classified as standalone, it could lose access to international capital, become an investment backwater, and join markets like Lebanon and Zimbabwe.

The Indonesia Stock Exchange lowered its lower auto-rejection limit to 7 percent, providing investors an opportunity to evaluate the situation. The Financial Services Authority also imposed fines totaling $116.4 million on those involved in alleged trading manipulation. MSCI had previously threatened a downgrade to frontier status in January due to concerns over ownership and trading behavior.

A full MSCI removal could result in $5.6 billion of passive outflows, while active funds holding more than $8 billion in Indonesian stocks could face discretionary selling. Foreign investors have already netted $4.88 billion in annual outflows, the largest in at least 16 years. MSCI's warning intensifies the pressure on President Prabowo Subianto's government, which has already faced rating downgrades from Moody's and Fitch.

The rupiah weakened to 18,040 per dollar, near its June record low of 18,190. Economists warn of potential ripple effects on the rupiah and domestic bond yields, which could lead to tighter financial conditions and impact the real economy.