Indonesia will remove stocks with concentrated ownership from its benchmark equities index, a move aimed at averting a potential downgrade of its market status by MSCI that could cut the country off from billions of dollars in global capital flows.
Jeffrey Hendrik, chief executive of the Indonesia Stock Exchange, said following a meeting with MSCI representatives that the move was intended to create a “more credible and integrity-driven price index,” directly addressing concerns MSCI has raised about ownership transparency.
The decision follows a surprise move by MSCI on Friday to place Indonesia on a path toward “standalone market” status, a far steeper downgrade than the “frontier market” classification previously under consideration. A standalone designation would exclude Indonesian stocks entirely from indices tracked by global funds, a shift that could trigger significant capital outflows from the market.
Indonesian equities have struggled since January, when MSCI first froze the country within its indexes and warned of a possible downgrade over opacity in stock ownership and trading behavior. Jakarta stocks have since plunged sharply, falling to a six-year low this week as the reclassification risk intensified, with the exchange also moving to halve its daily price-down trading limit in an effort to slow the sell-off.
MSCI is expected to issue a final decision on Indonesia's classification by June, leaving authorities several months to demonstrate the kind of governance and transparency improvements that could convince the index provider to reconsider the more severe standalone-market path.
