SINGAPORE/JAKARTA: Indonesian stocks headed on Thursday (Jan 29) for their steepest two-day slump since 1998 during the Asian financial crisis, as the risk of a downgrade to frontier market status rattled already fragile investor confidence and triggered a rush for the exits.
Authorities in Southeast Asia’s largest economy sought to stem the slide, which Finance Minister Purbaya Yudhi Sadewa called a temporary shock, saying there was no problem with economic fundamentals.
The benchmark Jakarta Composite Index was down about 6 per cent, off an earlier drop of 8 per cent, hit by what brokerage sources called “panic selling”, which triggered a trading halt, following Wednesday’s tumble of 7.4 per cent.
The rupiah also weakened 0.5 per cent to 16,780 against the dollar, just below last week’s record low of 16,985.
Officials of the financial regulator and stock exchange are set to speak to media at 6am GMT (2pm, Singapore time).
Investment banks Goldman Sachs and UBS lowered their recommendations for Indonesian stocks a day after index provider MSCI flagged problems with transparency and warned a downgrade to frontier from emerging status was possible.
Such a downgrade by MSCI, one of the biggest providers of market indexes, tracked by billions of dollars in passive investments, would force tracking funds to sell.
Active managers, whose performance is rated against the benchmarks, would also probably need to sell.
MSCI’s warning comes as foreign capital flows out because of concerns about how President Prabowo Subianto is widening the fiscal deficit and ramping up the state’s involvement in financial markets.
The appointment of his nephew, Thomas Djiwandono, to the central bank this month, after last year’s abrupt sacking of respected Finance Minister Sri Mulyani Indrawati, has shaken confidence in his fiscal stewardship and pushed the rupiah to record lows.
“The MSCI warning came at an inopportune time,” said Gary Tan, Singapore-based portfolio manager at Allspring global investments, pointing to a series of negative macro headlines and a weakening rupiah.
“This triggered a typical sell‑first, ask‑questions‑later response from passive and benchmark‑driven investors, resulting in a sharp near‑term correction,” Tan said.
He added that he was encouraged that regulators have signalled a willingness to engage constructively with MSCI and improve market transparency.
Brokerage sources described MSCI’s warnings as a “slap in the face” for market authorities, adding that inflows of foreign capital would dry up if MSCI flagged Indonesia as “uninvestable” or non-transparent.
https://www.channelnewsasia.com/business/indonesia-stocks-market-slump-downgrade-risk-exits-5892911
