Indonesia Cuts Auto-Rejection Limit to 7% to Calm Market Panic

Indonesian stocks slid to a six-year low on Monday after MSCI warned it may shift Indonesia to “standalone” status from its current emerging markets classification.

Jakarta’s benchmark fell over 5% in early trading, following an 11.6% plunge on Friday. Standalone status would risk cutting Southeast Asia’s biggest economy off from international capital and group it with markets such as Lebanon and Zimbabwe.

Indonesian Stocks Hit Six-Year Low as MSCI Warning Rattles Investors

MSCI had threatened a downgrade to “frontier” status in January over opacity in ownership and trading behaviour.

It now says a lack of progress means even that would not reflect the severity of the issues. Goldman Sachs strategists said the burden of proof has shifted, and avoiding reclassification will require clear evidence that reforms are consistently implemented.

The Indonesia Stock Exchange cut its lower auto-rejection limit to 7% from 15% to give investors time to digest information.

On Friday, the financial regulator announced fines totalling 2.1 trillion rupiah (US$116.4 million) over alleged share manipulation at three firms. Analyst Angus Mackintosh called this positive but said direct action against well-known market abusers is needed.

Goldman estimates a full MSCI removal could trigger US4.88 billion this year, the biggest outflow in at least 16 years. The rupiah has weakened to 18,040 per dollar, raising fears of spillover into bonds and the real economy.