Indonesia’s benchmark stock index plunged more than 5% on Monday to a six-year low, as concerns over a possible MSCI rating downgrade intensified fears of further outflows by foreign investors.
The Jakarta Composite Index fell to its lowest level since early October 2020, extending a sharp sell-off in Indonesian stocks. Index provider MSCI on Friday proposed upgrading Indonesia directly from emerging market status to standalone market status, raising the prospect of the country being removed from major global equity benchmarks.
MSCI is expected to make a final decision by June, with the potential reclassification dependent on the ability of Indonesian authorities to demonstrate significant improvements in governance and market transparency.
Goldman Sachs warned in a Sunday note that a complete removal of MSCI emerging markets indexes could trigger about $5.6 billion in passive outflows, equivalent to 18 days of average daily trading volume for components of the MSCI Indonesia Investable Market Index.
A further $2.7 billion could be at risk if FTSE Russell subsequently takes similar action, although the bank stressed that such a move would constitute a separate scenario.
Goldman estimated that active funds indexed to the MSCI and FTSE indexes hold more than $8 billion in Indonesian stocks, although any sales by these investors would be discretionary rather than automatically triggered by a downgrade.
The bank maintained its underweight in Indonesian stocks, citing continued index uncertainty, weak corporate profits and macroeconomic challenges.
“Valuations have compressed significantly, but remain above historic lows; index, earnings and macro risks limit a revaluation,” Goldman strategists led by Alvin So wrote.
The MSCI Indonesia index fell 47% this year on Friday, according to data provided by the bank, as foreign investors withdrew a net $5.1 billion from Indonesian stocks during the period.
Foreign ownership in Indonesian stocks fell to 25% in October from 27% in January, while the value of foreign holdings almost halved from around $130 billion to $250 billion, the bank said.
Despite the sharp declines, Goldman warned that Indonesian stocks may not have bottomed out. The 12-month price-to-earnings ratio of the MSCI Indonesia index fell to 7.3 times, its lowest level since the global financial crisis, but remains above historic lows.
Strategists also expect Indonesia’s central bank to raise interest rates twice, by 25 basis points each in the fourth quarter of 2026 and the first quarter of 2027, which could add further pressure on economic growth and stock market valuations.
Gn bussni
