The Indonesian authorities try to calm the worries after the market loss of $80 billion

By Stefanno Sulaiman and Ankur Banerjee

JAKARTA/SINGAPORE, Jan 29 (Reuters) – Indonesian authorities scrambled on Thursday to arrest an outflow of capital from the stock market, issuing measures to counter the risk of a downgrade to the status of the frontier market that led to a sell-off of more than 8% in just two days.

The rout, which wiped off about $80 billion in market value, came after index provider MSCI raised concerns about ownership and trading transparency in Indonesian stocks, the latest blow to a market struggling to maintain investor confidence.

Foreign capital has left Indonesia due to concerns about how President Prabowo Subianto is increasing the fiscal deficit and increasing the state’s involvement in the financial markets.

The appointment of his nephew, Thomas Djiwandono, to the central bank this month, following last year’s sudden sacking of respected Finance Minister Sri Mulyani Indrawati, has shaken confidence in his fiscal stewardship and pushed the rupiah to record lows.

MODEST RECOVERY AFTER REGULATORY RESPONSE

Indonesian stocks staged a modest recovery late on Thursday after the country’s regulators unveiled several measures, including doubling the free-float requirement for listed firms to 15%, as part of their response to the MSCI.

The benchmark Jakarta Composite Index closed down just 1% after an earlier slide of 8% – which led to a trading halt – following Wednesday’s 7.4% decline.

The rupiah was 0.27% softer at 16,745 against the dollar, just below last week’s record low of 16,985.

“The two-day sell-off looks less like a reaction to fundamentals and more like a repricing of market access risk,” said Josua Pardede, chief economist at PermataBank.

“The near-term market will likely remain headline-driven until there is tangible evidence of improvements in transparency and a more solid policy mix that reassures investors on institutional strength and fiscal discipline.”

During a press conference, Mahendra Siregar, head of the Financial Services Authority, said that the communication with MSCI was positive and that he is waiting for a response to its proposed measures, which he hopes can be implemented soon with the issues resolved by March.

“We will exclude investors in the corporate and other categories from the free float calculation and then publish shareholdings above and below 5% for each ownership category,” Mahendra said.

MSCI said in a statement on Thursday evening in Indonesia that it will “continue to monitor developments in the Indonesian market and engage with market participants and authorities, including the Otoritas ‌Jasa Keuangan and the Indonesia Stock Exchange, and will communicate further actions as necessary.”

The OJK is Indonesia’s financial regulator.

The measures appeared to ease some investor concerns, although sentiment is likely to remain fragile in the near term.

“This is an ongoing process, not a one-off announcement,” said Mohit Mirpuri, portfolio manager at SGMC Capital in Singapore. “What investors needed to see was alignment and intent, and that was clearly delivered.”

“Policy clarity usually comes after volatility, not before it. The last two days of selling have been pretty indiscriminate and historically you don’t expect everything to look perfect before you get in.”

DOWNGRADE AFTER WARNING

Investment banks Goldman Sachs and UBS cut their recommendations for Indonesian stocks on Thursday, a day after MSCI warned of a possible downgrade.

Degradation from MSCI, one of the largest providers of market indices – which are tracked by billions of dollars in passive investments – forces tracking funds to sell.

Active managers, whose performance is ranked against benchmarks, are also likely to need to sell.

“The MSCI warning came at an inopportune time,” said Gary Tan, Singapore-based portfolio manager at Allspring Global Investments, pointing to a spate of negative macro news and a weakening rupiah.

“This led to a typical sell first, ask questions later response from passive and benchmark-driven investors, resulting in a sharp correction in the near term,” Tan said.

Brokerage sources described MSCI’s warnings as a “slap in the face” for market authorities, adding that foreign capital inflows would dry up if MSCI labeled Indonesia as “uninvestable” or non-transparent.

Goldman Sachs warned that a $7.8 billion outflow was possible in the event of an MSCI downgrade, although strategists said that prospect was unlikely. UBS lowered its rating to “neutral.”

A downgrade to frontier market status, which analysts so far believe is unlikely, would bring Indonesia on par with Bangladesh, Pakistan, Sri Lanka and Vietnam.

Foreign investors sold 13.96 trillion rupiah ($834 million) of Indonesian shares in 2025, the worst year for outflows since 2020, with sales continuing in January, LSEG data showed.

(Reporting by Rae Wee We, Gregor Stuart Hunter and Ankur Baner in Singapore, Ananda Teresia and Stefaanno Sulaiman in Jakarta, Sameer ‌Manekar ‌Manekar in Bengaru; Writing by Ankur Banerjee, Editing by Thomas Derpinghaus, Clarence Ferndez and Ros Russell)

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