Indonesian Stocks Hit Six-Year Low on MSCI Downgrade Fears — SkimNews
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- Jakarta Composite Index tumbled over 5% on Monday to its lowest level since early October 2020, extending a brutal sell-off in Indonesian equities
- MSCI on Friday proposed reclassifying Indonesia directly from emerging market to stand-alone status, with a final decision expected by June contingent on improvements in market governance and transparency
- Goldman Sachs warned that a full MSCI removal could trigger approximately $5.6 billion in passive fund outflows—equivalent to 18 days of average daily trading volume for MSCI Indonesia constituents—with another $2.7 billion at risk if FTSE Russell follows suit
- Goldman strategists led by Alvin So maintained their underweight rating on Indonesian equities, citing index uncertainty, weak corporate earnings, and macroeconomic headwinds
- The MSCI Indonesia Index has fallen 47% year-to-date as of Friday, with foreign investors withdrawing a net $5.1 billion over the period
- Foreign ownership of Indonesian stocks has declined to 25% in October from 27% in January, while the value of foreign holdings has nearly halved to roughly $130 billion from $250 billion
- Goldman expects Indonesia's central bank to raise interest rates twice more—25 basis points each in Q4 2026 and Q1 2027—potentially adding further pressure to economic growth and equity valuations
Why it matters: With the MSCI Indonesia Index already down 47% year-to-date and foreign holdings nearly halving from $250 billion to $130 billion, a potential June downgrade to stand-alone status could lock in further forced selling. The $5.6 billion in passive outflows Goldman projects equals 18 days of average trading volume, meaning Indonesian equities face a structural liquidity drain that goes beyond typical macro concerns.
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