MSCI to keep curbs on Indonesian stocks as it reviews market transparency reforms
It will continue to freeze increases to foreign inclusion factors and the number of shares for Indonesian securities
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GLOBAL index provider MSCI said on Monday it will maintain curbs on Indonesian stocks in its global indexes for the May index review as it evaluates market transparency reforms announced by the South-east Asian country.
MSCI warned in late January that the US$1.4 trillion G20 economy could face a downgrade from “emerging” to “frontier” market status as a result of transparency problems in ownership and trading, leaving investors scrambling for the exits.
Indonesia completed key stock market reforms ahead of a May review deadline, including the release of more detailed shareholder data and the doubling of the minimum “free float” of tradeable shares for listed companies to 15 per cent, a move aimed at increasing liquidity and preventing stock price manipulation.
MSCI’s January warning had wiped out about US$120 billion in market value from Jakarta’s stock market as of early April.
The index provider said on Monday it is reviewing the scope, consistency, and effectiveness of new data sources and regulatory measures announced by Indonesia’s financial authorities and that it will give further updates in a June review.
Jakarta’s stock exchange (IDX) did not immediately respond to Reuters’ request for comment outside regular business hours.
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For the May review, MSCI will continue to freeze increases to foreign inclusion factors and the number of shares for Indonesian securities.
It will also refrain from adding Indonesian stocks to its investable market indexes or allowing any upward migration across size segments, including moves from small-cap to standard indexes.
The announcement comes about a week after rival index provider FTSE Russell kept Indonesia’s classification as a secondary emerging market unchanged and said it was not considering the country for inclusion on its watch list. FTSE said it will confirm the treatment of Indonesian securities ahead of its June index review.
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MSCI also said it will delete securities flagged by Indonesian authorities under the new framework, in line with how it handles similar cases in other markets. It may also use the 1 per cent shareholder disclosure data to adjust free-float estimates where appropriate, it added.
Beyond that, MSCI said it will not incorporate the new disclosures or data sources into its free-float assessments or index calculations until its review is completed and feedback from market participants has been assessed.
“This approach is designed to limit index turnover and investability risks while allowing time for further evaluation of the recently announced reforms,” MSCI said.
The index provider said it will continue engaging with market participants and Indonesian authorities. REUTERS
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