Black Monday 1987: Chronology, Causes, and Its Impact on Indonesia
On 19 October 1987, global stock markets experienced a catastrophic crash known as Black Monday, during which the Dow Jones Industrial Average (DJIA) plummeted 22.6 per cent in a single day, a record that still stands. The crash erased an estimated US$500 billion in market capitalisation in the United States, with global losses reaching approximately US$1.71 trillion. The event prompted fears of a prolonged economic depression akin to the Great Depression of the 1930s.
The turmoil began building in mid-October. On 14 October, market instability grew after the US Congress proposed tax changes that would remove incentives for corporate acquisitions via leveraged buyouts. The following day, geopolitical tensions flared in the Persian Gulf when an Iranian missile struck a US-flagged oil tanker, sparking fears of a wider conflict and disruption to global energy supplies. The Dow Jones Industrial Average fell 95 points. On 16 October, a severe storm struck London, causing widespread damage and power outages that forced the early closure of the London Stock Exchange. Meanwhile, the Dow fell a further 108 points.
When trading commenced in Asia on 19 October, the sell-off intensified. Hong Kong’s Hang Seng Index plunged sharply, triggering heavy selling in Tokyo and Sydney. As European markets opened, London’s stock exchange, reopening after the storm, saw a rush of sell orders and fell over 10 per cent within hours. By the time Wall Street opened, a massive imbalance between sell and buy orders overwhelmed computer systems, leading to the historic 508-point drop in the DJIA.
Economists attribute the crash to a combination of factors rather than a single cause. A primary technical factor was the rise of computerised programme trading, particularly the use of portfolio insurance strategies that automatically sold stock index futures as prices declined, accelerating the downward spiral. The crash led regulators to introduce circuit breakers to prevent excessive market panic. In Indonesia, the event directly influenced the adoption of auto-rejection mechanisms (ARA and ARB) to stabilise trading on the domestic stock exchange.