MSCI Highlights Transparency Concerns Over Indonesia
MSCI on Thursday raised further concerns regarding the investment viability of Indonesia, citing limited visibility in share ownership and coordinated trading behaviour, marking a new blow to the world’s worst-performing major stock market.
This warning emerges ahead of MSCI’s decision next week on whether to downgrade Indonesia’s market classification from emerging to frontier, a move that could trigger capital outflows of up to $13 billion.
Indonesia’s capital market has plummeted since MSCI highlighted transparency issues in January and warned of a potential downgrade to frontier market status.
In a market accessibility review released on Thursday, MSCI downgraded Indonesia’s information flow criteria to negative, reflecting a lack of transparency in ownership data and market activity. This undermines proper price discovery and limits the ability of global investors to assess the true free float of companies.
Mohit Mirpuri, a fund manager at SGMC Capital in Singapore, stated that the review was more balanced than the primary concerns suggest, noting that only one accessibility metric had worsened, while Indonesia continues to score well against other nations, including South Korea, China, and India, on several key criteria.
“The market may be trying to read between the lines, but the key point is that this is not a broad decline in Indonesia’s accessibility framework,” he said. “Our base case remains that Indonesia maintains its Emerging Market status.”
The Indonesia Stock Exchange and financial services regulators did not immediately respond to requests for comment from Reuters.
The January warning triggered a series of reform measures by authorities, including doubling the minimum free float for listed companies to 15%, following the resignation of top exchange executives and regulators in a single afternoon in January.
In April, MSCI extended its review of the Indonesian market and in May removed six companies, mostly related to tycoons, from its index, leading to further sharp declines in stocks.
A downgrade by MSCI, one of the largest market index providers tracked by billions of dollars in passive investment, would force trackers to sell and pressure active managers benchmarked to the MSCI index to reduce exposure.
MSCI’s scrutiny has revealed deeper anxieties regarding Indonesia under President Prabowo Subianto, as populist measures and concerns over fiscal health have pushed the rupiah to an all-time low, prompting the central bank to raise interest rates in recent weeks to support the currency.
MSCI noted that Indonesia lacks an efficient offshore currency market while facing constraints in the domestic market.