Jakarta stocks fall 11.6% as MSCI proposes dropping Indonesia from emerging markets

Indonesian stocks fell 11.6% on Friday, to 5,185 on the Jakarta Composite Index. Reuters reported the drop as the market's steepest one-day fall since 1998. The benchmark opened 8% lower, a decline that triggered a 30-minute trading halt, and the selling continued after trading resumed.

'Standalone' status is the harsher step

In a statement issued at 8.40 pm GMT on Thursday, MSCI said Indonesia's classification as an emerging market is no longer appropriate. The market aggregator said it had opened a consultation on moving the MSCI Indonesia indexes to standalone status - a classification below even frontier markets.

Reuters described the proposal as worse than the frontier downgrade MSCI had previously warned of. MSCI said feedback from market participants suggests a move to frontier markets would not properly recognize the depth of the problems.

The concerns MSCI cited include opaque shareholding structures, suspected coordinated trading, and a lack of evidence of meaningful enforcement. The current freeze on certain index changes for Indonesian securities stays in place. Feedback runs until April 30, 2027, with MSCI's final decision due on or before June 30, 2027.

MSCI said it expects to proceed with the downgrade unless the consultation finds clear evidence of material improvement in market governance and functioning, and Reuters reported that a removal would force funds that follow the indexes, or are measured against them, to sell. Stocks fell on Friday even though that decision is not due until June 30, 2027.

Reuters reported that UBS estimated about $4 billion of passive outflows if Indonesia is removed, and potentially a further $15 billion from active investors. Foreign investors have already net sold $4.7 billion of Indonesian shares this year, Reuters reported.

Jeffrey Hendrik, chief executive of the Indonesia Stock Exchange, said he would ask MSCI for clarification on the basis of the announcement.

Broad funds are not forced sellers today

In its October consultation, MSCI said Indonesia's weight in the MSCI Emerging Markets Index had fallen to 0.43% as of Sept. 30, from 1.16% at the end of 2025. A broad emerging-markets fund does not have to sell today. If the reclassification goes ahead, the forced sale is that slice of the index, not the fund. A fund that holds only Indonesia would be selling the market itself.

As of 7:04 a.m. ET, sellers of the iShares MSCI Indonesia ETF EIDO were asking $10.30, 11.8% below Thursday's close of $11.68, about the same size as Jakarta's drop. A buyer was offering $10.02, 28 cents less. The fund had not traded in Friday's regular session, so $10.30 is an asking price, not a trade.

Other major markets did not follow. Indexes in Japan, South Korea, Hong Kong and mainland China closed higher, and Europe was higher into the US morning.

The US open is nearly flat

In premarket quotes, the State Street SPDR S&P 500 ETF SPY was up 0.2% from Thursday's close, the State Street SPDR Dow Jones Industrial Average ETF Trust DIA was up 0.1%, and the Invesco QQQ Trust, Series 1 QQQ was down 0.1%.

The U.S. Bureau of Labor Statistics publishes September import and export prices at 8:30 a.m. ET, after import prices rose 0.7% in August. At 9:15 a.m., the U.S. Federal Reserve publishes September industrial production, which was unchanged in August.

The 10-year Treasury yield ended Thursday at 5.10% on the U.S. Treasury's daily par yield curve, down 9 basis points from 5.19% on Wednesday, even as producer prices rose 1.3% in September. That was the largest monthly increase since March 2022, after a 0.5% rise in August. CNBC described Thursday's drop in yields as investors moving into bonds during a tech selloff.