SINGAPORE: Indonesian stocks slid to a six-year low on Monday (Oct 19) as a warning from MSCI over possible expulsion from its global indexes next year rattled fragile investor sentiment, sharpening the focus on how Jakarta intends to allay the index provider’s concerns.
Jakarta’s benchmark stocks fell over 5 per cent in early trading on Monday after plunging 11.6 per cent on Friday, as the world’s worst performers reeled from index provider MSCI saying it was considering shifting Indonesia to „standalone“ status from its current „emerging markets“ mantle.
A shift to standalone status would risk cutting Southeast Asia’s biggest economy off from international capital, relegate it to an investment backwater and club it with a group of standalone markets that includes Lebanon and Zimbabwe.
The more-severe-than-expected move has raised the stakes for Indonesia’s regulators and finance officials.
On Monday, the Indonesia Stock Exchange said it cut its lower auto-rejection limit to 7 per cent from 15 per cent to give investors „an opportunity to evaluate and digest available information, helping them make better investment decisions based on Indonesia’s economic fundamentals“.
The move followed a weekend meeting between the financial regulator and capital market participants, including analysts and economists.
An Indonesian regulator on Friday also unveiled sanctions against those linked to alleged trading manipulation in shares of three firms, with the fines totalling 2.1 trillion rupiah (US$116.4 million).
Angus Mackintosh, an ASEAN specialist at Aletheia Capital in Singapore, said the fact the fines were announced on Friday suggests that Indonesia’s Financial Services Authority (OJK) has been working on the matter for a while.
„The fines are a positive move, but there needs to be concerted action to stamp the authority of the OJK and take direct action against certain well-known players who have been involved in market abuse,“ he said.
MSCI had threatened a downgrade to „frontier“ status in January because of opacity in ownership and trading behaviour but said on Friday the lack of progress in remedying those concerns meant even a drop to that status would not reflect the severity of the issues.
„The burden of proof has shifted: avoiding reclassification will require clear evidence that the announced reforms have been consistently implemented and materially improved market functioning,“ strategists at Goldman Sachs said in a note.
