Indonesian stocks rebound as authorities step up response to MSCI

Indonesian stocks bounced back after authorities took new steps to prevent a downgrade by MSCI, the credit rating agency. The benchmark Jakarta Composite Index surged 3.2%, recovering from a severe 15% drop over two days – the market's steepest since 1989. This recovery brought Indonesia's stock market back to the world's worst-performing status.

The Indonesia Stock Exchange announced it would exclude companies with concentrated ownership from the index calculation, following talks with MSCI officials. They will also disclose ownership details, identifying investors with at least 1% of company shares. MSCI has considered switching Indonesia from an emerging-market to standalone status, citing opaque shareholding structures and suspected coordinated trading.

The measures aim to boost market credibility for the long haul. About 18% of the JCI's weight comes from stocks with highly concentrated ownership, according to exchange CEO Jeffrey Hendrik. However, analysts say removing these stocks could cause short-term selling pressure. Investors note that MSCI's concerns extend beyond free float, concentrated ownership, and transparency.

Sustained enforcement across the market will be needed to avoid a downgrade. Financial and non-cyclical consumer stocks led the JCI's gains, including key players like Bank Rakyat Indonesia, Telkom Indonesia, and Bank Mandiri. Bond yields and the rupiah also improved.