Source : INDIA TODAY NEWS
Indonesian stocks suffered their biggest one-day fall in nearly three decades on Friday after global index provider MSCI ((formerly Morgan Stanley Capital International) warned that the country could lose its emerging market status. The move raised concerns about billions of dollars in potential capital outflows from Southeast Asia’s largest economy, reported Reuters.
The sharp sell-off also hit the country’s currency, while stock markets in South Korea and Taiwan showed signs of recovery after heavy losses in the previous session.
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INDONESIA STOCKS PLUNGE 11.4%
Indonesia’s benchmark stock index plunged as much as 11.4% on Friday, hitting its lowest level since early November 2020. The fall marked its worst single-day decline since January 1998.
The market opened nearly 8% lower, triggering a 30-minute trading halt.
Major Indonesian banks were among the worst-hit stocks. Bank Central Asia, Bank Rakyat Indonesia and Bank Mandiri each fell nearly 15%.
The country’s currency, the rupiah, also weakened to 18,070 against the US dollar, its lowest level since late July and close to its record low of 18,190.
With Friday’s losses, Indonesian stocks have fallen nearly 40% this year, making the country’s equity market the worst performer globally.
Justin Khoo, Senior Market Analyst – APAC, VT Markets, said, “Indonesian equities plunged over 11% after MSCI proposed downgrading the country to Standalone Market status, citing persistent ownership opacity and market governance concerns. The immediate risk is forced selling by index-tracking funds, potentially accelerating foreign outflows, weakening the rupiah and tightening domestic financial conditions. Despite being Southeast Asia’s largest economy, Indonesia represents just 0.43% of the MSCI Emerging Markets Index, suggesting limited direct global spillover.”
He added, “An 11% plunge alone is unlikely to destabilize Indonesia’s financial system. However, with the country’s stock market already down nearly 40% this year, sustained foreign capital outflows could weaken market liquidity, discourage investment and further erode investor confidence. Other ASEAN markets may benefit from portfolio reallocations, although broader regional sentiment remains vulnerable.”
WHY MSCI’S WARNING HAS WORRIED INVESTORS
MSCI said it would place Indonesia on a path towards being classified as a standalone market, a category below the frontier market status it had previously warned about.
The index provider also plans to remove Indonesia from a range of products tracked by global investors.
A move to standalone market status would mean Indonesian stocks would be excluded from global indexes followed by large passive investment funds. Funds tracking these indexes, or measuring their performance against them, could then be forced to sell their Indonesian holdings.
Such a change could put further pressure on the country’s stock market and lead to significant capital outflows.
Indonesia would also become the only Asia-Pacific market in the standalone category, alongside countries and territories including Argentina, Lebanon, Palestine and Ukraine. It would be the largest economy in this group, with an economy more than twice the size of Argentina’s.
MARKET TRANSPARENCY REMAINS A KEY CONCERN
The latest developments have put the spotlight on Indonesia’s efforts to improve market transparency and strengthen regulatory enforcement.
Josua Pardede, chief economist at Bank Permata, said the country needed to show clear and measurable progress in these areas rather than simply announce further reforms.
He also highlighted the importance of rebuilding Indonesia’s reputation as a transparent, well-regulated and dependable destination for long-term international investors.
Elsewhere in Asia, South Korea’s benchmark KOSPI recovered after hitting a six-month closing low in the previous session. However, it remained on track for its biggest weekly loss in 18 years following a sharp sell-off earlier in the week over concerns about artificial intelligence.
Taiwanese stocks also edged higher after falling more than 3% in the previous session. However, the Taiwan dollar weakened to 32.518 per US dollar, its lowest level since late July.
In Southeast Asia, Singapore’s stock market rose 0.8%, while Philippine stocks gained more than 2%. Malaysian stocks slipped 0.7%, even as an official advance estimate showed the country’s economy grew 5.3% year-on-year in the third quarter.
– Ends
SOURCE :- TIMES OF INDIA
