Indonesian Stocks Plunge After MSCI Reclassification Warning

Indonesia's Jakarta Composite Index fell nearly 12 percent on Friday, its steepest daily percentage drop in 28 years. The index opened down 8 percent, triggering a 30-minute trading halt.

MSCI opened a consultation on Thursday about reclassifying Indonesia from emerging market to standalone status. If implemented, Indonesian stocks would be excluded from major indexes tracked by global funds.

“If reclassification is realized, Indonesia risks experiencing foreign capital outflows, stock selling pressure, and increased”

The rupia weakened to 18,070 per dollar, its lowest level since late July, before recovering to trade near 18,000. Year-to-date losses for the JCI reached about 40 percent.

MSCI said investor responses suggest a downgrade to frontier-market status would not adequately recognize the depth of Indonesia's problems. The country would join Argentina, Lebanon, Ukraine, Zimbabwe and others in the standalone category, becoming the only Asia-Pacific nation in that group.

Indonesian authorities announced reforms in January after MSCI warned of a possible downgrade, citing investment conditions and transparency concerns. That earlier alert triggered a sell-off of nearly $80 billion in the Indonesian market.