Indonesia’s financial markets have crashed after Morgan Stanley Capital International (MSCI) threatened to downgrade the country from an emerging market to a standalone market.
The warning triggered a sharp sell-off, with the Jakarta Composite Index falling 11.6% in one day and losing around $82 billion in market value over two days.
Meanwhile, the Indonesian rupiah weakened to a record low of around 18,037 per U.S. dollar.
On 15 October, MSCI announced it would consult on moving Indonesia from emerging market to standalone market status. The index provider cited concerns about limited transparency in share ownership, suspected coordinated trading, and weak market rules.
MSCI said that these issues make it harder for global investors to understand who controls listed companies and whether stock prices reflect fair market activity.
The proposal follows an earlier warning in January. If Indonesia loses its emerging market status, funds that track MSCI indexes could reduce their exposure to Indonesian stocks.
Goldman Sachs warned that a downgrade could trigger $5.6 billion in passive investment outflows. Another $2.7 billion could leave if FTSE Russell takes similar action.
Following MSCI’s announcement, the Jakarta Composite Index (JCI) plunged 11.6% to 5,069 on October 16. The sharp sell-off wiped out about $85 billion in market value and pushed the index to a six-year low.
Selling continued on Monday, with the index falling another 3.64% to close at 4,996.60. However, stocks bounced back on 20 Oct, rising 5.65% to reach 5,278.
The Indonesian rupiah also weakened, quickly falling to around 18,070 per U.S. dollar.
To restore investor confidence, Indonesia’s financial regulators and stock exchange officials have introduced new measures to address MSCI’s concerns. The Indonesia Stock Exchange (IDX) now requires companies to disclose links between shareholders who own at least 1% of their shares.
The exchange also plans to remove stocks with highly concentrated ownership from the Jakarta Composite Index. Earlier, it raised the minimum public shareholding requirement to 15% to make more shares available for trading.
Separately, Indonesia’s Financial Services Authority and the IDX announced fines totaling 2.1 trillion rupiah against three companies over alleged share-trading manipulation.
MSCI is expected to make its final decision by June 30, 2027, giving Indonesia time to address the concerns.
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