Indonesia Market Turns Lower Amid MSCI Scrutiny

Indonesian equities slipped 37 points or 0.6% to 6,135 on Friday afternoon, erasing early gains and marking a third straight decline. Investor confidence dimmed as MSCI flagged transparency gaps and coordinated trading, just days before a possible downgrade to frontier status that could trigger massive capital outflows, around USD 13 billion, according to Reuters. Concerns also mounted over the impact of higher borrowing costs on household spending, after Bank Indonesia delivered a total of 100 bps of hikes since May to shore up the rupiah and stem capital flight. Still, the local market is tracking around a 2% rise for the week, the second consecutive weekly gain, boosted by hopes of a US-Iran agreement despite worries over Fed hawkishness. Losses spread across industrials, financials, property, and basic materials, with Telkom Indonesia (-6.8%), Sarana Menara Nusantara (-6.5%), Barito Pacific (-4.2%), and Bank Mandiri (-3.4%) among key laggards.

Indonesia’s IDX Composite edged up 12 points or 0.2% to 6,185 in early Friday trade, reversing losses in the prior two sessions amid a positive lead from Wall Street overnight as optimism over a potential US-Iran deal offset concerns over a hawkish Federal Reserve. Meanwhile, Bank Indonesia raised borrowing costs by 25bps on Thursday, bringing the cumulative 75bp hike since May to further support the rupiah and attract inflows. Among top movers were Merdeka Copper Gold (7.3%), Bank Central Asia (2.5%), Surya Citra Media (2.0%), and Charoen Pokphand (1.5%). Markets are heading for the second straight weekly advance, up around 3% so far, as bargain hunting continues after the benchmark hit a six-year trough. However, gains were capped by a new warning from MSCI as the index provider flagged weak visibility in shareholdings and signs of coordinated trading, just days before it decides whether to reclassify Indonesia as a frontier market, a downgrade that could accelerate fund outflows.

Indonesian shares tumbled 126 points, or 2.0%, to 6,092 in Thursday morning trade, extending the prior session’s slide as caution deepened ahead of MSCI’s Global Market Accessibility Review in early Friday and the June 23 Annual Market Classification Review, both critical for Indonesia’s benchmark status. Focus also turned to Bank Indonesia’s policy decision later today, with expectations of a hawkish stance after cumulative 75bps hikes since May to bolster the rupiah and rein in inflation. However, elevated borrowing costs risk further dampening domestic demand. Still, sentiment found some relief from a sharp rebound in U.S. futures after the Federal Reserve, under new chair Kevin Warsh, held rates steady, as expected, while signaling a more cautious policy outlook. All sectors retreated, led by financials, infrastructure, industrials, and energy. Notable laggards included Telkom Indonesia (-7.8%), Transcoal Pacific (-6.6%), Elnusa (-5.7%), and Semen Indonesia (-3.8%).