Indonesian Shares Drop Again as Downgrade Warning Worries Markets

Indonesian shares declined and ended a two-day rebound after fresh worries returned about a possible downgrade by MSCI Inc. The benchmark Jakarta Composite Index fell as much as 2.7 percent in early Thursday trading before cutting those losses. Indonesian stocks faced their worst rout in nearly three decades after MSCI warned last week that the country's emerging-market status is in danger. President Prabowo Subianto said Wednesday that his nation will not be intimidated by the index compiler. This defiant message threatens to bring uncertainty over Jakarta's promise to carry out more market reforms. Kaanhari Singh, who is the head of Asia Pacific equity-flow derivatives sales at Barclays Plc, told Bloomberg TV that Indonesian assets are cheap but could get even cheaper in June 2027. Singh added that equity rallies will likely be sold unless there is a very strong turnaround in what MSCI wants to see. MSCI stated Friday that it is thinking about dropping Indonesia from emerging-market status to standalone status. This move goes beyond a January warning about a possible shift to frontier status due to opaque shareholding structures and coordinated trading. A downgrade would speed up foreign selling because the country would be cut from major global indexes. Authorities have taken steps to stop the downgrade, including placing fines on manipulative market practices and promising to remove closely held companies from the benchmark gauge.

Context

MSCI is a major global company that creates stock indexes used by investors around the world to guide where they put their money. When a country's market status changes on these indexes, big global funds often have to buy or sell shares automatically to match the new rules. This can lead to large drops or gains in local stock prices.