MSCI Downgrade Unlikely to Trigger Panic, IHSG Expected to Remain Stable
The decline in Morgan Stanley Capital International’s (MSCI) assessment of Indonesia’s capital market accessibility criteria on Thursday (18/6) is predicted not to trigger massive panic in the domestic market. The market’s relatively calm reaction is seen as an indication that the negative sentiment has been anticipated by market participants.
Researcher from the Center of Reform on Economics (CoRE) Indonesia, Yusuf Rendy Manilet, stated that trading activity has so far shown resilience. This is reflected in the movement of the Composite Stock Price Index (IHSG) at the end of last week, which managed to stay in positive territory.
According to Yusuf, despite moving with some volatility following the MSCI announcement, the IHSG actually closed slightly higher on 19 June. This indicates that the information regarding the criteria downgrade has already been priced into current stock prices.
“The market reaction at that time did not show panic. It indicates that the negative sentiment from the decision has largely been discounted into prices,” Yusuf said when contacted on Sunday (21/6).
Looking ahead to the market opening on Monday (22/6), Yusuf projects that any pressure will be relatively limited. Investors have had the weekend to digest the information, so the potential for a massive sell-off due to this accessibility issue is minimal.
Yusuf emphasised that a downgrade in one accessibility criterion does not immediately alter Indonesia’s status in the global investment landscape. Currently, Indonesia remains firmly in the Emerging Market group. The scheduled annual classification announcement in the middle of the week (24/6 local time) will be a more significant catalyst for global investors.
“I see this development more as a signal that Indonesia has successfully avoided the risk of a status downgrade for now, rather than as a new positive catalyst for the market,” he added. MSCI’s focus is more on institutional aspects rather than macroeconomic fundamentals, which are still considered stable.
Although the MSCI issue has not triggered panic, the Indonesian stock market still faces considerable structural challenges. Year-to-date, the IHSG has recorded a fairly deep correction, accompanied by a trend of foreign capital outflows. Current market conditions are largely supported by domestic investor activity. Yusuf believes trading at the start of the week will likely move in a wait-and-see mode while market participants observe the full evaluation results from MSCI due mid-week.