Indonesian stocks fall 11 percent after MSCI proposes market downgrade

Indonesian stocks plunged 11 percent on Friday after index provider MSCI proposed reclassifying the country from an emerging market to a standalone market. Euronews, Yahoo Finance, CNA, TradingView, and NDTV Profit reported the 11 percent drop. The Wall Street Journal reported that the fall was the largest for Indonesian shares since the Asian financial crisis in 1998, while Euronews similarly noted it was the biggest single day drop in 28 years. [1][2][5][6][7][8]

According to Euronews, MSCI stated that following investor concerns, the continued emerging market status for Indonesia was no longer appropriate. The index provider is now launching a consultation on the proposal to classify the country as a standalone market. [1]

Capital International originally established MSCI in Geneva, Switzerland in 1965 as part of an expansion into global investment management by Capital Group Companies. The initiative aimed to address a lack of standardized benchmarks for U.S. investors seeking to evaluate international equity performance. [10]

The proposed reclassification threatens to trigger significant capital outflows from global investment funds. Euronews reported that the move could potentially force funds that track the MSCI emerging market indexes to sell off their Indonesian holdings. [1]