Morning rush hour in Jakarta. Indonesia’s Jakarta Composite Index faced some challenges in 2022, but as of Friday’s close it was the best performing major Asia-Pacific index this year.
Ismoyo Bay | AFP | Getty Images
MSCI has warned of transparency issues in Indonesia’s market, just months after its previous warning sent the country’s stock price tumbling.
The index provider said opaque shareholding structures and signs of coordinated trading activity were impairing the ability of foreign investors to accurately value a company’s free float and rely on market prices. The Jakarta Composite Index erased early gains on Friday, falling almost 30% since the beginning of the year.
MSCI echoed its initial concerns about Indonesia in a January report, saying the country could be downgraded from emerging market status. MSCI downgraded Indonesia’s Information Flow Rating in its annual Global Market Accessibility Review released on Thursday, citing deep-rooted issues with ownership transparency and price formation. Türkiye was also reduced by similar measures for similar reasons.
Investors have expressed concerns about the sharp rise in some Indonesian small-cap stocks and the concentrated ownership structure. The report comes amid widespread doubts about the country’s fiscal health, problems with capital flight and the rupiah at a record low against the dollar. Bank Indonesia unexpectedly raised interest rates last week.
“Continued opacity in shareholding structures and signs of coordinated trading behavior that undermines appropriate price formation raise accessibility concerns,” MSCI said in the report.
The global financial services firm added that these issues “significantly limit the ability of international institutional investors to assess true free float and rely on observed market prices in portfolio construction and index replication.”
