MSCI removes more Indonesian stocks, dealing fresh blow to market amid reform push

[JAKARTA] Indonesia’s stock market suffered another setback after MSCI removed several companies from its index on Thursday (Nov 12), piling pressure on the authorities to address the index provider’s concerns about market transparency.

The move follows MSCI’s warning last month that Indonesian stocks could face broader exclusions from its indices next year, alongside the risk of the country being reclassified from an emerging market to a standalone market, a significantly more severe outcome than the initial warning issued in January.

MSCI removed energy company Barito Pacific, owned by billionaire Prajogo Pangestu, from its Global Standard Index, while mining company Bumi Resources Minerals will be downgraded to the Global Small Cap Index, according to the index provider’s latest review released early Thursday.

The index provider also removed nine Indonesian stocks from its Global Small Cap Index, further reducing the country’s representation in its global benchmarks. The changes will take effect after the market closes on Nov 30.

South-east Asia’s largest economy is under growing scrutiny as investors raise concerns over market transparency, the reliability of free-float data and opaque shareholding structures.

Fears of a potential downgrade have added to selling pressure on Indonesian equities, contributing to a more than 41 per cent decline in the Jakarta Composite Index so far this year, making it the world’s worst-performing major stock market.

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MSCI will accept feedback on its proposed reclassification of Indonesia until Apr 30, 2027, with a final decision due by Jun 30.

Foreign investors have withdrawn about US$5.4 billion from Indonesian equities so far this year, reflecting growing caution over the country’s market outlook.

Goldman Sachs has estimated that a potential exclusion of Indonesian stocks from MSCI’s indices could trigger another US$5.6 billion in passive investment outflows, adding to pressure on a market already struggling to regain foreign investor confidence.

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MSCI’s Global Standard Index is closely tracked by international institutional investors, with changes to its constituents potentially triggering portfolio adjustments by funds that benchmark their investments against the index.

Indonesia’s representation in the MSCI Indonesia Index has already shrunk to nine companies, following the removal of six stocks in May and another two in August.

The latest exclusions come as the government and capital-market authorities attempt to restore investor confidence through a series of reforms aimed at improving market transparency and governance.

The Financial Services Authority and the Indonesia Stock Exchange have introduced measures to improve the disclosure of share ownership, strengthen free-float requirements and address concerns over concentrated shareholdings.