(July 8): S&P Dow Jones Indices has listed Indonesia as a country for potential downgrade to frontier-market, saying it may first consider implementing special treatment for its securities if circumstances worsen.
A reclassification is not imminent, as a decision will be made if matters remain unresolved one calendar year from the date of introduction of the special measures, the index compiler said Wednesday in an update ahead of its 2027 annual review.
“S&P DJI continues to track developments related to stock ownership transparency in Indonesia and the Indonesia Stock Exchange’s accompanying guidance aimed at addressing disclosure-related concerns and the potential liquidity impact,” it said.
The warning is likely to add to investor uncertainty that’s brewed over months after MSCI Inc in January raised concerns about Indonesian stocks’ investability and flagged a potential downgrade to frontier market status. Concerns in particular around free float — the number of shares available for trading — have emerged as a flashpoint in Indonesia in recent years, as investors lament that the nation’s biggest companies are thinly traded and controlled by a handful of wealthy individuals.
MSCI’s warning, which had triggered a market rout, prompted authorities to introduce a series of reforms. The index compiler last month postponed its review on Indonesian equities, already delayed from May, saying it needed more time to see whether recently announced transparency reforms are effective.
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“If Indonesia gets downgraded and does not heed what the index providers are saying, we are talking about billion of dollars of outflows,” said Ashwin Binwani, founder of Alpha Binwani Capital.
Regulators have introduced a series of reforms in recent months, including raising minimum float. The Indonesia Stock Exchange took the unusual step of identifying firms with high shareholder concentration — an issue that underpinned MSCI’s decision to remove some of these stocks from its indexes in May. The installation of capital markets veteran Jeffrey Hendrik as chief executive officer of the stock exchange recently has also steadied some nerves.
Uncertainty ahead of the index compilers’ decisions had pushed many market participants to the sidelines, with investors citing the overhang from potential outflows. Coupled with concerns over policy direction and the fallout from the Iran war, the benchmark Jakarta Composite Index had tumbled 31% to become the world’s worst-performing major gauge this year.
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