Indonesian stocks rebound as authorities step up response to MSCI

Indonesian stocks rebounded from their worst rout in nearly four decades after authorities unveiled fresh measures aimed at averting a potential two-step downgrade by MSCI.

The benchmark Jakarta Composite Index rose as much as 3.2%, clawing back some of a roughly 15% two-day plunge that was its steepest since 1989 and cemented the country’s position as the world’s worst-performing stock market.

The Indonesia Stock Exchange said it will remove companies with highly concentrated ownership from the calculation of the benchmark index, following a meeting between exchange officials and MSCI representatives on Monday. The bourse will also expand ownership disclosures by identifying whether investors holding at least 1% of a company’s shares are affiliated with the company.

“We believe this is a step in the right direction, with long-term market credibility more important than short-term index performance,” said Henry Wibowo, director and co-founder of Alphagate Capital in Jakarta.

The measures offer investors some relief after MSCI said it’s considering downgrading Indonesia from emerging-market to standalone status, going further than its January warning of a possible reclassification to frontier status. The index provider raised concerns over opaque shareholding structures and suspected coordinated trading, saying reforms announced by Indonesian regulators this year had yet to produce sufficient progress.

Stocks with highly concentrated ownership currently account for about 18% of the JCI’s total weighting, according to exchange chief executive Jeffrey Hendrik. He said a timeline for their removal will be announced soon. The shares will remain tradable, but their price movements will no longer affect the benchmark.

Removing such a large chunk of the index could trigger portfolio rebalancing and selling pressure in the near term, said Felix Darmawan, an analyst at PT BCA Sekuritas. “I’d see that as short-term pain for potentially longer-term gain,” he said.

Investors also cautioned that cleaning up the index alone won’t resolve MSCI’s broader concerns over free float, concentrated ownership, transparency and governance. Avoiding a downgrade will ultimately require sustained, market-wide enforcement that convinces MSCI and foreign investors that the reforms extend beyond stocks already under scrutiny.

For now, the measures helped restore some appetite for Indonesian assets. Financial and non-cyclical consumer stocks led the JCI’s gains, with PT Bank Rakyat Indonesia, PT Telkom Indonesia and PT Bank Mandiri among the biggest contributors to the advance.

Bonds and the currency also recovered. The 10-year government bond yield slipped 1 basis point to 7.42% after climbing as much as 12 basis points on Monday, while the rupiah strengthened along with most Asian currencies to 18,013 per dollar.

Subscribe to our newsletter and get news delivered to your mailbox.