MSCI proposes removing Indonesia from its global stock indexes altogether

what happened

MSCI has proposed removing Indonesia from its global stock indexes altogether, going well beyond the milder downgrade to frontier status it had floated earlier. According to TradingView, the announcement wiped about $65 billion off Indonesian equities, and the Jakarta Composite Index fell 11.6%, its largest one-day drop since the 1998 Asian financial crisis.

The rupiah slipped as much as 0.8%, and some analysts raised the possibility of a central bank rate hike. MSCI cited opaque ownership, suspected coordinated trading and weak enforcement. A final decision is due by next June, after a consultation running until April.

why it matters

Unlike a move to frontier status, standalone classification brings no offsetting demand from frontier funds, so passive money may head for the exits. The indexes are tied to more than $1.8 trillion in assets. Indonesia is also the top exporter of thermal coal, palm oil and nickel, so pressure on state-linked companies' financing could spill into public finances.

market impact

Indonesian stocks and rupiah: passive capital outflows and pressure on the Jakarta Composite

instruments