Indonesian markets extended their selloff, with stocks deepening their worst rout in almost 30 years and losses spreading to bonds and the rupiah after MSCI Inc. warned the country may face a two-step downgrade.
The benchmark Jakarta Composite Index fell as much as 5.4% on Monday, extending a 12% plunge on Friday and further cementing Indonesia's position as the world's worst-performing stock market. The 10-year bond yield jumped 12 basis points to the highest in four months, while the rupiah weakened 0.2%.
MSCI said Friday it's considering downgrading Indonesia from emerging-market to standalone status, going well beyond the potential move to frontier status it flagged in January. It cited investor concerns over opaque shareholding structures and suspected coordinated trading, saying reforms announced by local regulators this year failed to yield sufficient progress.
“Foreign capital is staging a full-blown exit from Indonesia's equity market, and now the bond market is feeling the heat,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “A sliding rupiah is eating real yields. Until the currency finds its footing, global money is content to watch this one safely from the sidelines.”
Indonesian officials plan to meet MSCI executives on Monday to seek clarity after saying they were blindsided by the index provider's threat. On Friday, the country's Financial Services Authority said it found evidence of manipulation in stock-trading and allocations in initial public offerings of three companies.
Indonesia has sought to restore market confidence since MSCI raised concerns in January, tightening free-float rules, improving shareholder disclosures and increasing scrutiny of concentrated ownership and trading. The index company says significant concerns remain, including a lack of meaningful enforcement, and will make its final decision by June 2027.
The issue raises the risk of further outflows if Indonesia is ultimately removed from major global benchmarks. Compounding the challenges are US Treasury yields above 5%, which make Indonesian assets less attractive to global investors, a rupiah near 18,000 per dollar and tighter fiscal room.
Foreign investors have already pulled a net $5.1 billion from Indonesian equities in 2026, on course for its largest annual outflow on record.
Authorities sought to contain the latest fallout. The Indonesia Stock Exchange on Monday tightened trading limits for individual stocks, cutting the maximum daily decline to 7% from 15% through the end of the year. The Financial Services Authority also met with analysts, economists and financial influencers on Sunday to discuss recent market reforms and developments.
“Selling pressure remains significant, particularly in stocks that have a major influence on the JCI, such as the big banks,” said Herditya Wicaksana, an analyst at PT MNC Sekuritas. Precautionary measures such as tighter trading limits can help contain further declines, he added.
Companies are stepping in with share buybacks. Three firms linked to billionaire Prajogo Pangestu planned a combined 2.5 trillion rupiah ($138 million) in purchases. PT Dian Swastatika Sentosa, part of tycoon Franky Widjaja's Sinar Mas Group, also proposed a 1 trillion rupiah share buyback. The moves come after regulators last week announced about $117 million in fines over manipulative market practices involving some of the companies.
A full removal of Indonesian stocks could trigger about $5.6 billion in passive outflows, with another $2.7 billion potentially at risk if FTSE Russell follows suit, according to Goldman Sachs Group Inc. Mirae Asset Sekuritas Indonesia estimates around $3 billion of passive outflows, while Citigroup Inc. puts the figure in the mid-single-digit billions.
The prospect of more foreign selling is also spilling into debt and currency markets. Lloyd Chan, a foreign-exchange strategist at MUFG Bank in Singapore, said the latest MSCI announcement is a catalyst for the selloff in local bonds as foreign investors remain concerned. A weaker rupiah would further erode the appeal of holding Indonesian debt, he said.
The moves were mixed across the yield curve on Monday. The 10-year yield climbed to as high as 7.47%, while the five-year yield fell as much as 11 basis points after surging 22 basis points on Friday.
DBS Group Holdings Ltd. warned the fallout could spread further, tightening financing conditions across markets. A broader correction may push the 10-year government bond yield toward 7.5% and prompt Bank Indonesia to raise rates by another 50 to 100 basis points, it said in a note.
What Bloomberg's Strategists Say...
The picture facing investors is a negative feedback loop developing across Indonesian assets, which will likely need local authorities to provide a circuit breaker to create a positive change in sentiment.
— Mark Cranfield, Markets Live Strategist. Click here for more.
The latest volatility adds to pressures that have been building for months. MSCI's review has ramped up scrutiny of Indonesia's market structure and governance at a time when investors are also weighing concerns over central-bank independence and the expanding role of the state in key industries under President Prabowo Subianto.
MSCI plays an influential role in Indonesia's stock market because its indexes are widely used by global investors to determine how much capital to allocate to the country.
“Regulators need to continue to show their will to protect market integrity,” said Hui Ling Loh, managing director at ACG Management Pte. “For now, even the locals are not buying. There's too much uncertainty.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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