April 21 : MSCI said on Monday it will extend its review of Indonesia’s stock market by a month to June to assess reforms announced by the Southeast Asian nation, after a warning in January triggered a market rout and a foreign investor exodus.
The global index provider had warned that Indonesia could be downgraded to “frontier” market status from “emerging” as a result of transparency problems.
That has led to Jakarta’s stocks tumbling 12 per cent this year, making it the worst-performing major stock market in Asia, and foreigners selling roughly $2.3 billion worth of stocks on a net basis.
MSCI said it was reviewing the new data sources and regulatory measures announced by Indonesia’s financial authorities, adding it would provide further updates in a June review.
But for now MSCI said it would continue to freeze increases to foreign inclusion factors and the number of shares for Indonesian securities. It will also refrain from adding Indonesian stocks to its investable market indexes or allowing any upward migration across size segments.
Mohit Mirpuri, a fund manager at SGMC Capital, said MSCI’s latest statement was largely in line with expectations.
“This reinforces MSCI’s measured, wait-and-see approach, engaging constructively with the reforms, but needing more time to assess implementation,” said Mirpuri. “For now, the market remains in a holding pattern, with June as the next key catalyst.”
Jakarta stocks fell 0.8 per cent in early trading.
Indonesia stock exchange acting CEO Jeffrey Hendrik said on Tuesday the exchange met with MSCI last week and will continue communication with the index provider.
“We will also continue to engage with global investors to gather input on strengthening the capital market in the future,” Hendrik said in a statement.
INDONESIA’S REFORMS
Since MSCI’s warning in January, Indonesia has unveiled key stock market reforms, including the release of more detailed shareholder data and the doubling of the minimum “free float” of tradeable shares for listed companies to 15 per cent, a move aimed at increasing liquidity and preventing stock price manipulation.
The MSCI announcement comes a week after rival index provider FTSE Russell kept Indonesia’s classification as a secondary emerging market unchanged and said it was not considering the country for inclusion on its watch list.
MSCI said it would not incorporate the new disclosures or data sources into its free-float assessments or index calculations until its review is completed and feedback from market participants has been assessed.
“This approach is designed to limit index turnover and investability risks while allowing time for further evaluation of the recently announced reforms,” MSCI said.
The index provider said it would continue engaging with market participants and Indonesian authorities.