Indonesian stocks rebound as authorities step up response to MSCI

Indonesian stocks experienced a rebound following authorities' stepped-up response to potential MSCI downgrades. The Jakarta Composite Index rose by up to 3.2%, recovering from a 15% two-day drop that marked the country's worst-performing stock market since 1989. MSCI had considered reclassifying Indonesia from emerging-market to standalone status, citing concerns over opaque shareholding structures and suspected coordinated trading.

Indonesian authorities unveiled measures to address these issues, including removing companies with highly concentrated ownership from the benchmark index calculation and expanding ownership disclosures. These actions aimed to provide investors with relief and improve market credibility. However, removing highly concentrated stocks, which accounted for 18% of the JCI's total weighting, could lead to short-term portfolio rebalancing and selling pressure.

Investors cautioned that sustained, market-wide enforcement would be necessary to fully resolve MSCI's broader concerns over free float, concentrated ownership, transparency, and governance. Financial and non-cyclical consumer stocks led the JCI's gains, with major contributors including PT Bank Rakyat Indonesia, PT Telkom Indonesia, and PT Bank Mandiri. Bond yields and the rupiah also showed signs of recovery in the aftermath of the index rebound.