Indonesia Stock Market Plunges on MSCI Downgrade Risk

Indonesian stocks are experiencing their largest two-day fall on record, with the Jakarta Stock Exchange sinking 8% on Thursday after a 7.4% tumble on Wednesday, triggering trading halts. This selloff is primarily driven by a warning from MSCI, a major index provider, about potential 'investability risks' and a possible downgrade of Indonesia from emerging to frontier market status due to concerns over market transparency, stock ownership, trading, and price formation. Investment banks like Goldman Sachs and UBS have cut their recommendations for Indonesian equities, with Goldman Sachs estimating potential capital outflows of $2.2 billion to $7.8 billion if a downgrade occurs. Investor confidence has also been shaken by President Prabowo Subianto's policies, including a widening fiscal deficit and increased state involvement in financial markets. The appointment of his nephew, Thomas Djiwandono, to the central bank and the earlier sacking of Finance Minister Sri Mulyani have further contributed to concerns about fiscal stewardship, pushing the Indonesia===Indonesian rupiah to record lows. Overseas investors have already sold significant amounts of Indonesian shares, with outflows continuing into January.