Markets
Jakarta Fell Another 5% on Monday After Friday's Crash. Estimates of MSCI-Related Outflows Now Reach $5.6 Billion
The Jakarta Composite traded at 4,923 at midday on October 19, down 5.1%, after losing 11.57% on Friday when MSCI proposed moving Indonesia to standalone status. The largest estimate of passive outflows if the country is removed is now $5.6 billion. The rupiah was at 18,035 per dollar, within 1% of its record low, and Bank Indonesia meets on Tuesday and Wednesday.
The second day was not a rebound. Indonesia's stock market reopened on Monday, October 19 after the worst session since the Asian financial crisis, and kept falling: the Jakarta Composite opened at 4,961.88, down 4.3%, traded as low as 4,907.37, and stood at 4,923.26 at midday Jakarta time, down 5.05% from Friday's close of 5,185.10. Over two sessions the index has lost 16% and it is now down about 20% in two weeks. For the year the decline is close to 40%, the worst of any sizeable market.
The trigger has not changed since Thursday evening. MSCI said Indonesia's classification as an emerging market was no longer appropriate, citing unreliable shareholding data, concentrated ownership and suspected coordinated trading, and opened a consultation on moving the country to standalone status that runs to April 30, 2027, with a decision due by the end of June 2027. The exchange and the Financial Services Authority said over the weekend that they were seeking clarification and pointed to reforms already under way. MSCI's position is that those reforms must show consistent implementation and a lasting improvement in investability before it will change its view.
What changed over the weekend was the arithmetic of forced selling. Goldman Sachs estimated that a complete removal from MSCI's indexes would trigger about $5.6 billion of passive outflows, above the $3 billion Mirae Asset Sekuritas estimated on Friday and the $4.8 billion from JPMorgan; UBS had put passive selling near $4 billion with as much as $15 billion more from active managers benchmarked to the index. Indonesia is about 0.4% of the MSCI Emerging Markets Index. Foreign investors sold a net 3.34 trillion rupiah of Indonesian shares on Friday, and the New York-listed iShares MSCI Indonesia ETF closed at $9.94, down 14.9%, before the Jakarta market had reopened.
The currency is the second front. The rupiah traded at 18,035 per dollar on Monday, down from 17,866 a week earlier and within 1% of the record low of 18,190; Bank Indonesia said intervention was continuing in the domestic and offshore markets alongside purchases of government bonds in the secondary market. Its policy meeting on October 20 and 21 was expected to leave the BI rate at 5.75%, but Citi analysts argued last week that a pre-emptive increase might be needed to stop equity outflows spreading into the bond market, and local economists said a 25 basis point hike could not be ruled out if the pressure persisted.
The contrast with the rest of Asia makes the point that this is a local problem. On the same morning the Kospi reversed a 3% opening loss, Shanghai rose on a strong GDP report and Nasdaq futures gained more than 1%. Indonesia's fall is about index mechanics and governance, not about chips or rates, and that is why it has no natural floor until either MSCI changes its view or the price falls far enough that the eventual forced selling is already discounted. Friday's close looked like the first attempt at that price; Monday's trading says it was not low enough.