Indonesian Stocks Fall as Concerns Over MSCI’s Downgrade Return

(Bloomberg) -- Indonesian shares declined, ending a two-day rebound in a sign of fresh worries about MSCI Inc.’s warning to downgrade the Southeast Asian country. 

The benchmark Jakarta Composite Index fell as much as 2.7% in early Thursday trading, before paring the losses.

Indonesian stocks suffered their worst rout in nearly three decades after MSCI warned last week the country’s emerging-market status was in jeopardy. President Prabowo Subianto said Wednesday his nation won’t be intimidated by the index compiler, a defiant message that threatens to inject uncertainties over Jakarta’s commitment to further market reforms.       

“Indonesian assets are cheap, but I think there is possibility they may get even cheaper in June 2027,” Kaanhari Singh, head of Asia Pacific equity-flow derivatives sales at Barclays Plc, told Bloomberg TV. “Unless again there is a very strong turnaround in terms of what MSCI wants to see, equity rallies are probably going to be sold.”

The assessment came after Indonesia’s president struck a tone of defiance in the face of the index compiler’s warning. “I only want to say to MSCI that the Indonesian nation is not afraid of anyone and will not be intimidated,” Prabowo told cabinet members during a televised meeting in Jakarta, without elaborating.

MSCI said Friday it’s considering downgrading Indonesia from emerging-market to standalone status, a step beyond its January warning of a possible move to frontier over opaque shareholding structures and coordinated trading. A downgrade would accelerate foreign selling as the country is dropped from major global indexes.

Authorities have since taken steps to stave off such a downgrade, including imposing fines on manipulative market practices and a pledge to remove closely held companies from the benchmark gauge. 

--With assistance from Abhishek Vishnoi.

(Updates with price moves and comments.)

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