Indonesia Stock Market: An earthquake hit the stock market of Indonesia, the largest economy in South-East Asia, on Friday. As soon as the market opened, investors started selling to such an extent that the record of the last three decades was broken. The cause of this massive disaster is a shocking decision by global index firm MSCI. The firm has clearly stated that Indonesia no longer deserves ’emerging market’ status. This one statement has broken the back of the market. The situation has become such that billions of dollars of foreign investment are at risk of leaving the country.
As soon as the market opened, there was an uproar
Friday morning was a nightmare for the Indonesian stock market. As soon as the market opened, the benchmark index fell by 8 percent. The fall was so severe that the administration had to immediately stop trading for 30 minutes. Even when trading resumed, the selling pressure did not ease. In no time, the index plunged 11.4 percent. This is the lowest level since November 2020. At the same time, in terms of one-day decline, this is the biggest crash since January 1998. Because of this heavy sell-off, Jakarta shares have fallen nearly 40 percent so far this year. With this it has become the world’s worst performing stock market.
Shares of major banks fell on their faces
Even the big banks of the country could not save themselves in this tsunami of the market. Apart from Bank Central Asia, Bank Rakyat Indonesia, shares of Bank Mandiri saw a steep decline of around 15 percent. Along with the stock market, the country’s currency has also taken a big hit. The Indonesian rupiah weakened to 18,070 against the US dollar. This is the lowest level since late July. It is now very close to its all-time low of 18,190.
Risk of toeing the line between Palestine and Ukraine
MSCI has shocked everyone with its decision. Earlier there were warnings that Indonesia might be placed in the ‘frontier’ category, but now the company has put it squarely on the path to ‘standalone market’. This condition is considered worse than Frontier. In addition, there are preparations to exclude Indonesia from many products tracked by global investors. If this downgrade is implemented, Indonesia will join the ranks of countries such as Argentina, Lebanon, Palestine or Ukraine. This will be the only market for this range in the Asia-Pacific region.
The second largest economy in this group is Argentina, while its size is not even half that of Indonesia. After gaining standalone status, Indonesian shares will be excluded from the global index in which billions of dollars are passively invested. In such a situation, funds following these indices will be forced to sell their shares. According to Josua Pardede, Chief Economist at Bank Permata, Indonesia must now bring transparency to the market rather than just announcing new reforms. Apart from this, the rules have to be strictly enforced. According to him, it is necessary to stop the downgrade for now, but the real goal should be to regain market confidence for international investment.
How are other Asian markets doing?
On the one hand there was an uproar in Indonesia, on the other hand a mixed effect was seen in other Asian markets. South Korea’s benchmark Kospi showed a slight recovery from the previous session’s six-month low. However, it is headed for its biggest weekly decline in 18 years, following a heavy sell-off earlier this week on AI-related concerns. Taiwanese shares rose slightly after falling more than 3 percent the previous day, but the dollar weakened to 32.518 per US dollar. Elsewhere in South-East Asia, Singapore’s market rose 0.8 percent, while shares in the Philippines gained more than 2 percent. On the other hand, Malaysian stocks fell 0.7 percent, although the Malaysian economy grew 5.3 percent year-on-year in the third quarter, according to government estimates. Thailand’s stock market was closed due to the holiday.
