Indonesia Stocks Hit Six-Year Low as MSCI Downgrade Threat Sparks Panic
Indonesia’s benchmark Jakarta Composite Index fell more than 5 percent on Monday to its lowest level since early October 2020, a six-year low. According to Reuters and Morningstar, the index slid as much as 5.4 percent intraday to 4,907.37. The drop followed an 11.6 percent plunge on Friday, the worst since the 1998 Asian financial crisis, which wiped out $65 billion in market value.
Indonesia is Southeast Asia’s largest economy, home to 280 million people, and the world’s biggest nickel producer. By banning nickel ore exports and requiring domestic smelting, it has become a key link in the electric-vehicle battery supply chain. Its resources and growth potential are abundant, but this shock targets market credibility rather than economic fundamentals.
The blow came from global index provider MSCI. MSCI builds the indexes that institutional investors worldwide use as benchmarks for emerging-market investing, so removal from an index triggers automatic outflows from index funds. On Oct. 15, MSCI opened a consultation on downgrading Indonesia from emerging-market to “standalone” status, citing opacity in ownership structures and coordinated trading. The move would be harsher than the frontier-market downgrade it warned about in January.
If the downgrade happens, the fallout could be large. Goldman Sachs estimates about $5.6 billion in passive funds would leave if Indonesia is fully removed from the MSCI Emerging Markets Index. Another $2.7 billion would be at risk if FTSE Russell follows. The consultation runs through April 30, 2027, with a final decision by June 30, 2027.
Indonesian authorities moved to contain the damage. The Indonesia Stock Exchange cut the daily down-limit for individual stocks from 15 percent to 7 percent through year-end. Exchange CEO Jeffrey Hendrik said he would hold a video call with MSCI on Monday to demand an explanation of the downgrade rationale.
Standalone designation is extremely rare. Argentina received it in 2021 over capital controls, and Russia in 2022 over Western sanctions. Indonesia has been a staple of foreign investors’ emerging-market portfolios since joining the MSCI Emerging Markets Index in 1989.
The shock also stands out as Indonesia-specific. South Korea’s Kospi rose 3.6 percent and Japan’s Nikkei 225 gained 1.9 percent on the same day as Asian markets broadly rebounded.
