Indonesia stocks plunge as MSCI plans to strip emerging-market status
MSCI plans to reclassify Indonesia as a standalone market, citing serious market dysfunction and inadequate reforms. The Jakarta Composite Index fell 8 per cent, triggering a trading halt, before losses widened to nearly 13 per cent. The IDX said it had taken steps to improve transparency and demand
International index compiler MSCI has proposed removing Indonesian equities from its global benchmark indexes, sending the Jakarta Composite Index down 8 per cent and triggering a circuit breaker before losses widened to nearly 13 per cent after trading resumed.
MSCI said it had "serious concerns" over market dysfunction in Indonesia and that its classification as an "emerging market" was no longer appropriate. The firm plans to reclassify the country as a "standalone market" and remove it from a range of index products tracked by global investors.
The index provider said it had frozen Indonesia's status in its indexes because of a lack of transparency in the ownership structure and trading behaviour of the local market. It added that reform efforts on these issues had been insufficient, and that market participants had indicated even downgrading Indonesia to "frontier market" status would not adequately reflect the severity of the problems.
Indonesia Stock Exchange said it had taken concrete measures to improve the transparency and integrity of the local capital market, and would ask MSCI to further explain the basis for its decision.
Market observers said MSCI's move could force funds that track its indexes or use them as performance benchmarks to sell Indonesian stocks, triggering capital outflows.