Key facts
- MSCI's proposal to downgrade Indonesia from emerging to standalone market status surprised investors.
- The downgrade could trigger billions in foreign capital outflows from Indonesia.
- Concerns cited by MSCI include market transparency, fair price formation, and regulatory enforcement credibility.
Indonesia's stock market suffered its sharpest daily decline in nearly 30 years on October 16, losing approximately $65 billion in value after MSCI proposed downgrading the country from emerging-market to standalone-market status. The Jakarta Composite Index fell 11.6 per cent following the announcement, a move more drastic than an initial warning in January. This potential downgrade, driven by concerns over market transparency, fair price formation, and regulatory enforcement credibility, could lead to significant foreign capital outflows. MSCI has granted Indonesia an opportunity to demonstrate improvements before a final decision is made next year.