MSCI takes a tough stance — Indonesia’s stock market plunges 7%.

(Jakarta, Jan 28)
Indonesian equities plunged about 7% after MSCI raised serious concerns over the market’s investability and warned that Indonesia could be downgraded from “Emerging Market” to “Frontier Market” status.

MSCI said it would immediately pause all index changes until regulators address persistent structural issues in the market. The index provider will halt the addition of any new constituents and freeze increases to the number of shares deemed investable and accessible to investors.

“Fundamental investability issues” flagged

In its statement, MSCI said the region’s largest market faces “fundamental investability issues,” pointing in particular to tightly held ownership structures among listed companies. It also voiced concerns about potentially coordinated behavior in the market that could distort price action.

The announcement is viewed as a major setback for Indonesian equities because a potential reclassification to frontier-market status could trigger outflows from funds that track MSCI’s Emerging Markets indices.

As of 10:46 a.m. local time, the Jakarta Composite Index was down 631.24 points, or 7.03%, at 8,348.99.