Jakarta Composite Index Rebounds 4.3% Amid MSCI Concerns
Indonesian stocks see a significant recovery as authorities address MSCI's downgrade threats, yet investor confidence remains shaky.
The Jakarta Composite Index surged 4.3% after MSCI's intervention.
Indonesia is still the worst-performing stock market globally, with a 15% drop recently.
Investor confidence hinges on transparency and governance reforms.
The Jakarta Composite Index experienced a notable rebound of 4.3% following recent measures taken by Indonesian authorities to avert a potential downgrade by MSCI Inc. This recovery comes after a staggering 15% decline over two days, marking the steepest drop since 1989. Despite this uptick, Indonesia continues to hold the title of the world's least favorable stock market for investors.
In a bid to address concerns raised by MSCI, the Indonesia Stock Exchange announced it would exclude companies with concentrated ownership from its benchmark index calculations. This decision followed discussions between exchange officials and MSCI representatives. Although the specific stocks affected have not been disclosed, it is estimated that these companies represent approximately 18% of the Jakarta Composite Index's weight. The exchange's CEO, Jeffrey Hendrik, indicated that a timeline for the removal of these stocks would be provided soon.
The planned changes reflect actions taken by MSCI in May, which involved the removal of six stocks that accounted for around 17% of its index. Currently, these stocks represent about 7.9% of the Jakarta Composite Index, suggesting that more significant adjustments are necessary. Analysts, including Citigroup's Ferry Wong, emphasize that the effectiveness of these measures will depend on their application across a broader spectrum of stocks with high shareholder concentration.
Investor unease has been exacerbated by Indonesia's opaque ownership regulations and low free-float requirements, which have historically limited trading liquidity and increased the risk of volatile price movements. MSCI's recent warning about potentially downgrading Indonesia from emerging-market status to standalone status has intensified these concerns. Such a downgrade could lead to substantial foreign capital outflows, with estimates suggesting a potential $5.6 billion in passive outflows if Indonesia is removed from major global indexes.
While the recent measures have rekindled some investor interest, with financial and non-cyclical consumer stocks leading the gains, experts caution that restoring confidence will require more than just index adjustments. Henry Wibowo, co-founder of Alphagate Capital, noted that lasting credibility hinges on improved ownership transparency and robust regulatory enforcement. He stated, "Improving the quality of the index is not the same as improving the quality of the market."
