Key Takeaways
- • MSCI will remove Barito Pacific from its global standard index and move Bumi Resources Minerals to the small cap index, with deletions taking effect after the close of trading on November 30, forcing index-tracking funds to sell the shares.
- • The move leaves the MSCI Indonesia index with nine firms after six companies were culled in May and two more in August.
- • Foreign investors have pulled $5.4 billion from Indonesian equities this year, and Goldman Sachs estimates MSCI's removal of the country's stocks could spur $5.6 billion of passive outflows.
- • MSCI is seeking feedback on its reclassification proposal until April 30, 2027 and will decide on or before June 30, 2027, while analysts worry active investors may exit before then.
- • More than $1.8 trillion in assets are benchmarked to MSCI's emerging-market indexes, and the benchmark Indonesian index is down over 40% this year, the worst performance among major global markets.
Summary
Global index provider MSCI said on Wednesday that it will remove one Indonesian company, Barito Pacific, from its global standard index, while Bumi Resources Minerals will be moved from that index to the small cap index, according to Reuters. The deletions will take effect after the close of trading on November 30, and will force funds tracking MSCI's indexes to sell the shares.
The decision is a setback for Indonesia's efforts to avoid a downgrade and retain its emerging-market status. MSCI had warned a month earlier that Indonesian stocks could be removed from its indexes next year and the market relegated to "standalone" status, a harsher outcome than the "frontier" market downgrade it first threatened in January. Last month, MSCI cited Indonesia's failure to improve ownership transparency and curb coordinated trading. The MSCI Indonesia index currently has nine firms after the provider culled six companies in May and two more in August.
The benchmark index is down over 40% this year, making it the world's worst-performing major stock market. Foreign investors have already pulled $5.4 billion from Indonesian equities this year. Goldman Sachs estimates that MSCI's removal of the country's stocks from its indexes could spur $5.6 billion of passive outflows. Indonesia has been an MSCI emerging market since 1989, and a downgrade would reverse its status as a market that until recently was a favourite of foreign investors.
Indonesian authorities have tightened disclosure requirements and laid out plans to raise minimum free floats. The regulator announced sanctions last month linked to alleged manipulation, and the stock exchange this week removed the 5 trillion rupiah market cap threshold for screening companies that breach high shareholding concentration rules.
MSCI is seeking feedback on the reclassification proposal until April 30, 2027, and will announce its decision on or before June 30, 2027. Analysts worry that many active investors may exit Indonesia before then. More than $1.8 trillion in assets are benchmarked to MSCI's emerging-market indexes, according to the index provider's website.
The decision is a setback for Indonesia's efforts to avoid a downgrade and retain its emerging-market status. MSCI had warned a month earlier that Indonesian stocks could be removed from its indexes next year and the market relegated to "standalone" status, a harsher outcome than the "frontier" market downgrade it first threatened in January. Last month, MSCI cited Indonesia's failure to improve ownership transparency and curb coordinated trading. The MSCI Indonesia index currently has nine firms after the provider culled six companies in May and two more in August.
The benchmark index is down over 40% this year, making it the world's worst-performing major stock market. Foreign investors have already pulled $5.4 billion from Indonesian equities this year. Goldman Sachs estimates that MSCI's removal of the country's stocks from its indexes could spur $5.6 billion of passive outflows. Indonesia has been an MSCI emerging market since 1989, and a downgrade would reverse its status as a market that until recently was a favourite of foreign investors.
Indonesian authorities have tightened disclosure requirements and laid out plans to raise minimum free floats. The regulator announced sanctions last month linked to alleged manipulation, and the stock exchange this week removed the 5 trillion rupiah market cap threshold for screening companies that breach high shareholding concentration rules.
MSCI is seeking feedback on the reclassification proposal until April 30, 2027, and will announce its decision on or before June 30, 2027. Analysts worry that many active investors may exit Indonesia before then. More than $1.8 trillion in assets are benchmarked to MSCI's emerging-market indexes, according to the index provider's website.
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