Indonesia market sinks to 2020 levels on threat of MSCI demotion

JAKARTA, Oct 19 — The main stock index in Jakarta closed at its lowest level in six years today, following sharp losses last week, as index compiler MSCI considers stripping Indonesia of its emerging market status.

The South-east Asian nation’s benchmark Jakarta Composite Index (JCI) fell 3.6 per cent to close at 4,996, a level last seen in 2020.

It was the second consecutive day of heavy losses after the JCI plunged more than 11 per cent on Friday in the biggest single-day fall since early 1998.

The index has plummeted more than 40 per cent since the start of the year.

The MSCI said on Friday it was it was “no longer appropriate” to maintain Indonesia’s emerging-market status and was considering whether to reclassify it as a “Standalone Market”.

The US firm cited a lack of progress on investors’ concerns over “ongoing opacity in shareholding structures”, as well as co-ordinated trading behaviour that affected price information.

The reclassification could trigger passive funds outflows worth US$5.6 billion (RM22.9 billion) from Indonesia, according to Goldman Sachs.

It would also put Indonesia in the same bracket as countries such as Argentina, Ukraine and Bulgaria.

Today’s decline suggested that investors are still looking at an “adjustment of risk premiums”, Bank Danamon Indonesia economist Irman Faiz told AFP.

“Looking ahead, volatility is expected to remain high and, while a technical rebound is possible, low valuations do not guarantee a sustained recovery,” Irman said.

“The key lies in demonstrable improvements in transparency and regulatory enforcement, alongside stability in the Indonesian rupiah.” — AFP