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Indonesia's stock market experienced a dramatic downturn, shedding US$65 billion in value in a single day. The plunge marks the market's biggest crash since 1998, triggered by a warning from index provider MSCI.
Why MSCI's Move Matters
MSCI creates stock market indices tracked by major investment funds globally. When investors allocate capital into an emerging markets fund, that fund typically follows MSCI's index to decide which countries and individual equities to invest in.
While Indonesia is currently included in these indices, MSCI is now threatening to remove the country entirely. Investors have raised concerns regarding true ownership of certain Indonesian shares, alongside suspicions that specific trading activities may be manipulating prices. Although Indonesia has announced reforms, MSCI stated that there has not been enough improvement.
Precedents and Economic Fallout
Index expulsions have happened before. Argentina was removed by MSCI in 2021 and remains excluded from its main global indexes five years later. Nigeria was also removed from MSCI's frontier-market indexes in 2024.
For Indonesia, analysts estimate that exclusion could trigger up to US$19 billion in potential investment outflows. Such capital flight could weaken the rupiah, driving up the cost of imported goods. It could also make raising funds significantly harder for companies, potentially affecting domestic employment.
MSCI is scheduled to reach its final decision by June 2027, with the potential outcome posing broad economic consequences for the country.
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