Indonesian Stocks Rebound as Daily Decline Limit Cut to 7%
Key Facts
Indonesian stocks rebounded on Tuesday after authorities intervened to calm a record selloff, Reuters reported, while MSCI's market classification remained the focus of regulatory action. The exchange cut the daily limit on stock price declines to 7% as part of measures to contain selling following the turmoil. The previous limit allowed daily declines of up to 15% before it was revised during the week of the report. The rebound followed a two-day selloff that erased $82 billion in stock market value, according to the news agency. The index fell a cumulative 14.8% over Friday's and Monday's sessions before turning higher on Tuesday.
Indonesian authorities met with the index provider on Monday to seek an explanation of its warning on the market's classification, Reuters reported. MSCI opened a consultation on a proposal to move its Indonesia indexes from emerging markets to standalone market status. The move remains a proposal under consultation ahead of a final decision. The company said feedback from market participants indicated that a move to frontier markets status would not adequately reflect the depth of the market's problems. The consultation therefore addresses a standalone classification for Indonesia, rather than simply moving it to the frontier markets category.
Investor concerns relayed by MSCI included opaque share ownership structures in the Indonesian market. The company also pointed to persistent suspicions of coordinated trading behavior among the problems affecting the market's investability. On disclosure, the announced reforms include enhanced reporting of shareholders with holdings exceeding 1%, according to the company. The reforms also include a roadmap to raise the minimum free float to 15%. The disclosure measures and increase in shares available for trading form part of the regulatory response to ownership and investability concerns raised by market participants.
Foreign investors had recorded net sales of $4.88 billion in Indonesian stocks since the start of the year, according to a Reuters report published on Monday. Those sales formed the backdrop to the turmoil that prompted authorities to intervene before stocks rebounded on Tuesday. Lukman Leong, a senior analyst at Doo Financial Futures, described the recovery as "a short-term improvement in sentiment, rather than a sign of a fundamental improvement in the outlook," according to Reuters. The analyst linked his assessment of the rebound to an improvement in near-term investor sentiment. He kept his assessment of the fundamental outlook separate from stocks' response to the latest measures.
Goldman Sachs estimated that Indonesia's complete removal from MSCI indexes could trigger $5.6 billion in passive fund outflows, according to Reuters. That estimate depends on a full exclusion, which has not taken place as consultations on the classification continue. In a separate estimate cited by the news agency, UBS said the proposed downgrade could lead to about $4 billion in passive investment outflows. The bank added that active investors could contribute a further $15 billion in outflows. The bank tied the potential withdrawal of these investments to implementation of the proposed downgrade, while authorities continue to discuss the concerns with the index provider.
On monetary policy, Bank Indonesia held its benchmark interest rate at 5.75% at its September meeting, according to Investing.com. That level serves as the prevailing monetary policy benchmark ahead of the central bank's next meeting. The site's economic calendar lists the next interest rate decision for 21 October 2026. Investors await that monetary policy decision following the stock market turmoil and the measures authorities took to contain the selloff. On the market reclassification, MSCI said it would announce its final decision by the end of June 2027.