Indonesian stocks fall more than 5% as Prabowo refuses to back down over classification warning
Key Facts
Indonesian President Prabowo Subianto refused to back down over MSCI's warning about the stock market's classification as Jakarta's benchmark index fell more than 5% on Monday, Reuters reported. The session's decline followed a loss of 11.6% the previous Friday, with Indonesian stocks facing a selloff over the index provider's proposed change to the market's status. Prabowo told his cabinet that "the Indonesian nation fears no one and will not back down," in remarks reported by the Associated Press. The proposal would move Indonesia from emerging-market to standalone status, putting its classification with the index provider under review. The move remains subject to consultation and is not a final decision to reclassify the Indonesian market.
The concerns MSCI outlined in its consultation announcement centre on opaque share ownership structures and suspected coordinated trading behaviour in the market. The company described its concern as "opaque shareholder structures and suspected coordinated trading behaviour," placing ownership transparency and trading practices at the heart of its classification review. In a response reported by the Associated Press, it said its assessments were based on "transparent, rules-based methodologies." Alongside the reclassification proposal, the company is maintaining an existing freeze on certain changes involving Indonesian securities in its indexes. The freeze covers changes to securities' inclusion and weightings and remains in effect until further notice, according to the company's announcement.
In a government clarification of Prabowo's remarks, spokesman Sya'hganda Nainggolan said the president's position was a call for dialogue with the index provider, according to the Associated Press. He added that the invitation was conditional on talks taking place "without pressure or coercion," saying the remarks were not a challenge to MSCI. The government clarification thus emphasised Jakarta's conditions for dialogue on the classification issue. The dispute also included allegations by former trade minister Muhammad Lutfi that Temasek and GIC had pressured the index provider over the Indonesian market's status. Both companies rejected the allegations, according to the agency, while MSCI reiterated the methodological basis of its assessments.
On potential flows, Goldman Sachs estimated that full exclusion from MSCI indexes could trigger $5.6 billion in outflows from index-tracking investments, Reuters reported. That estimate relates to a full-exclusion scenario, which the bank used to calculate the amount of money at risk of leaving. Foreign investors' net sales of Indonesian equities had already reached $4.7 billion during 2026 as of Reuters' earlier report on the index provider's announcement. Against the monetary policy backdrop, a Bloomberg survey on the October 2026 decision showed economists evenly split between expecting rates to remain unchanged and anticipating an increase, according to the Business Times. Of the 38 economists surveyed, 19 expected a hold, while the other half forecast a rate increase.
MSCI is accepting market participants' feedback on the reclassification proposal until April 30, 2027, according to its announced consultation timetable. It set the end of June 2027 as the deadline for announcing its final decision on Indonesia's classification. The company said it expected to proceed with reclassification unless the consultation revealed clear evidence warranting reconsideration of the proposal. It specified that the evidence must demonstrate tangible improvements in market governance and functioning, linking any reconsideration of its position to changes in those areas. That condition places improvements in governance and market functioning at the centre of the next phase of consultation, before the classification is settled by the announced deadline.