MSCI unnecessarily throws Indonesia into a panic
MSCI•MSCI proposed reclassifying Indonesia as a standalone market, which would remove it from the provider’s global benchmarks unless it sees clear evidence of material improvements. The announcement sent the Jakarta Composite Index down about 11%, its sharpest one-day fall since the 1998 Asian financial crisis.
1. Proposed market downgrade
MSCI proposed reclassifying Indonesia as a “standalone” market after market participants said that even frontier status would not properly reflect the market’s problems. The provider said it would proceed unless its consultation over the next nine months identifies clear evidence of material improvements in market governance and functioning.
2. Officials seek clarification
The article says Indonesian institutions were kept in the dark about the proposal. Economic minister Airlangga Hartarto said MSCI had not mentioned a possible standalone downgrade during a meeting that week, while bourse head Jeffrey Hendrik said he would seek further clarification.
3. Sharp market reaction
The announcement, a month before a scheduled review, sent the Jakarta Composite Index down about 11% and brought year-to-date losses to about 40%. If Indonesia is removed from MSCI’s Emerging Markets Index, passive investors tracking the index, followed by funds worth about $1.4 trillion, would have to exit Indonesian stocks.
