Danantara Keeps Its Indonesia Strategy Despite MSCI Downgrade Warning

what happened

Danantara, the Indonesian fund that manages roughly $1 trillion in assets, says it is keeping its plan for allocating money at home and abroad. The comment came after MSCI warned last week that it could move Indonesia's equity market from emerging-market to standalone status, a step that would remove local shares from several major indexes followed by global funds, according to Dow Jones Newswires.

A spokesperson said the fund's confidence rests on the country's economic base and the strength of its local companies. In his view, governance problems on the market raised by MSCI should be handled separately from the investment potential of those firms. The spokesperson added that the index provider's assessment has not changed the fund's long-term outlook on the country's capital markets.

After the warning, the Jakarta Composite Index and the rupiah dropped sharply. Sentiment later steadied once authorities announced measures to raise transparency and rebuild investor trust.

why it matters

The reclassification threat matters beyond a single fund: passive funds that track MSCI indexes could be forced to sell Indonesian stocks if the change goes ahead. Investors are therefore worried about governance issues and also about a sudden outflow of money. Market participants will watch whether the announced transparency measures are enough to satisfy the index provider.

market impact

Indonesian equities and rupiah: possible MSCI reclassification could trigger index-fund outflows

tags

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