Global Market: Indonesia stock exchange to meet MSCI after downgrade warning triggers market rout

IDX Chief Executive Jeffrey Hendrik said the exchange would hold an online meeting with MSCI later on Monday after the index provider announced Friday that it was considering downgrading Indonesia to standalone market status.

Indonesia's main stock index fell 5% on Monday, extending losses after suffering its worst trading session since 1998 on Friday. The announcement caught Indonesian authorities and market participants by surprise, Reuters reported.

Hendrik said the exchange, the Financial Services Authority and market participants had not anticipated the warning. He added that discussions with global investors indicated that they believed Indonesia continued to meet the criteria for emerging-market classification.

MSCI raised concerns about dysfunctions in Indonesia's equity market, including coordinated trading behaviour and shortcomings in the enforcement of market rules. The index provider's latest warning represents a more severe risk than its previous indication that Indonesia could be downgraded to frontier-market status.

A move to standalone status would exclude Indonesian stocks from global indexes tracked by passive investment funds, potentially triggering significant capital outflows and reducing foreign investor participation in the country's equity market.

The downgrade threat has intensified market uncertainty, with Indonesia losing $65 billion in market capitalisation on Friday alone, according to exchange data cited by Reuters.

To curb the selloff, the Indonesia Stock Exchange halved the daily price decline limit for stocks to 7% on Monday. Hendrik described the measure as an effective way to reduce volatility as authorities seek to stabilise trading conditions.

Upcoming discussions with MSCI are expected to help Indonesian officials better understand the concerns behind the potential reclassification and the steps needed to address them. The outcome could significantly impact investor confidence and the country's access to international capital, Reuters reported.