BI Governor Says MSCI-Related Outflows Will Be Short-Lived

Bank Indonesia (BI) Governor Destry Damayanti believes the impact of MSCI’s announcement proposing changes to the classification of Indonesia’s capital market—which triggered capital outflows—will be short-lived.

She also said continued efforts by capital-market regulators to improve governance could draw foreign investors back over the longer term.

“I am confident that we have great opportunities in the long term. We see the impact of MSCI as a short-term shock. We hope that once the issues of concern have been addressed, the situation can turn around,” Destry said at the Indonesian Chamber of Commerce and Industry’s (Kadin) national leadership meeting in Jakarta on Thursday.

Destry said Indonesia’s economic fundamentals remain strong and have significant potential to attract long-term investment.

In her view, MSCI’s announcement could provide an opportunity for stakeholders to accelerate capital-market reforms, particularly in transparency, governance and regulation. These improvements are important to address investors’ concerns about Indonesia’s capital market.

Destry said the Financial Services Authority (OJK) had also taken various steps to improve conditions, which are expected to help restore investor confidence.

She also recounted the view of a stock analyst who considered Indonesian shares relatively cheap, with a price-to-earnings ratio of around seven times and prices said to have fallen back to 1993 levels. The analyst argued that valuations did not reflect the scale of the domestic economy’s potential.

Destry added that some foreign investors continued to view Indonesia positively because of its considerable economic potential. One of them was a senior global executive at a major foreign bank, who regretted MSCI’s announcement.

According to Destry, the investor said the US market carried its own risks, with its stock-market capitalisation reaching about 2.4 times gross domestic product (GDP) and technology stocks dominating. Meanwhile, some European countries face high debt ratios and large budget deficits.

As a result, foreign investors still see Asia, particularly Indonesia, as an attractive investment destination.

Destry said the OJK’s swift response to the MSCI issue, together with coordination among the Financial System Stability Committee (KSSK), is expected to help maintain global investors’ confidence in Indonesia’s economic fundamentals.