PNB unfazed by MSCI's Indonesia concerns

KUALA LUMPUR: Permodalan Nasional Bhd (PNB) has dismissed the need for a complete pullout from Indonesian investments following MSCI's suggestion to reclassify the nation's equity market. The index provider's apprehensions alone are insufficient to warrant an exit, PNB stated. PNB disclosed that it does not hold direct shares in Indonesian equities, with its direct exposure to the country confined to modest fixed-income investments, comprising a negligible fraction of its total assets under management.

MSCI's recent decision, disclosed on October 15, involves demoting Indonesia from an emerging market to a standalone market due to persistent worries over opaque shareholding structures, alleged coordinated trading, and shortcomings in market governance. This action led to a significant market downturn, with Indonesia's benchmark Jakarta Composite Index experiencing its largest one-day plunge since January 1998 following a US$65 billion loss in stock value on October 16.

MSCI also highlighted that market participants have yet to witness enough proof that recent reforms by Indonesian authorities have substantially enhanced market transparency and functionality. The proposal reflects heightened concerns initially raised in January, when MSCI placed certain index-related adjustments involving Indonesian securities on hold while awaiting enhancements in free-float data and shareholder disclosures.

Indonesia has since implemented measures such as disclosing shareholders with stakes exceeding 1%, devising a framework to monitor high shareholding concentration, and outlining a plan to raise the minimum free float to 15%. MSCI is presently consulting market participants until April 30, 2027, and is anticipated to announce its final resolution by June 30.

It has also sustained the suspension of specific index changes in the interim. PNB emphasized that the downgrade by the global index provider is merely one among numerous factors the fund evaluates before committing to investments, with other considerations encompassing economic fundamentals, valuation, liquidity, governance standards, regulatory developments, and the long-term prospects of the country.

PNB highlighted uncertainties surrounding market accessibility, governance, foreign investor participation, currency stability, and policy direction must be balanced against individual company fundamentals. Regarding PNB's investment in Malayan Banking Bhd (Maybank), which holds exposure to Indonesia via PT Maybank Indonesia Tbk, PNB expressed confidence in the group's management and board to bolster operational performance, manage risks, and amplify shareholder value.

PNB characterized its Maybank investment as a long-term strategic holding, pledging to engage constructively with the group through established governance channels, while respecting the board and management's authority over its subsidiaries.