The Jakarta stock exchange lost as much as 11.4% on Friday, October 16, according to Journal du Coin, which describes it as its worst session since 1998. The trigger: MSCI’s announcement, the previous day, of a consultation on moving Indonesia from emerging market status to standalone market status. MSCI is due to decide by June 30, 2027 at the latest.

A session halted, then extended into further losses

According to Journal du Coin, the October 16 session opened with an 8% drop, enough to trigger a thirty-minute trading halt. When trading resumed, the decline continued. The day’s figure varies across the article: the text reports a loss of up to 11.4%, while the caption of a chart of the IDX Composite index, taken from TradingView, mentions 11.6%. The source does not explain this discrepancy.

According to the same source, the Indonesian stock market is down nearly 40% in 2026, the worst performance in the world, and net sales by foreign investors have reached $4.7 billion since January. On October 16, the rupiah fell to 18,070 to the dollar, close to its all-time low of 18,190.

What MSCI holds against Indonesia

In its October 15 statement, quoted by Journal du Coin, MSCI recalls that during its June review it noted “persistent opacity in shareholding structures” and suspicions of “coordinated trading behaviour”. The Indonesian authorities had promised reforms: disclosure of shareholders above 1%, a more granular classification of investors, reporting of shareholding concentrations and a roadmap towards a minimum free float of 15%. MSCI considers that “sufficient progress has not been consistently observed”.

The index provider ruled out a move to frontier market status, which “would not adequately reflect the depth of the market’s problems”. Standalone status, that of Argentina or Lebanon according to the source, places a country outside all the major indices. The consultation runs until April 30, 2027. Until then, the freeze in force since January remains in place: no Indonesian stock can be added to the indices or have its weight increased.

How an MSCI index triggers forced selling

An MSCI index is a basket of securities defined by selection and weighting rules. Passive funds, including many ETFs, do not pick their securities: they replicate the composition of the index they track. As Journal du Coin puts it, an ETF that replicates the MSCI Emerging Markets index holds Indonesian shares because the index contains them, “not out of conviction”.

If a country leaves the index, these funds must sell the securities concerned to stay faithful to their benchmark. These sales are mechanical. Reuters, quoted by the source, mentions “billions of dollars” of passive investment affected, without giving a precise amount.

Markets do not generally wait for such a change to take effect: other investors can anticipate the index funds’ sales, which weighs on prices as soon as the announcement is made. This is one possible reading of the October 16 session; the source does not detail who sold.

What this means for emerging market ETFs

Generally speaking, a country’s exit from an emerging market index changes the composition of that index: the weights of the remaining countries are recalculated, and the funds that replicate it adjust their positions accordingly. For the holder of an emerging market ETF, exposure to the excluded country would disappear from their fund without them having to take any action. The source gives neither Indonesia’s weight in the index nor the technical timetable for a possible exit; it is therefore not possible to quantify the effect here.

Jakarta pushes back, the decision remains open

The president of the Indonesia Stock Exchange, Jeffrey Hendrik, is asking MSCI for “clarification on the rationale and assessment criteria” and points out that this is the opening of a consultation and not a final decision, according to Journal du Coin. Analyst Angus Mackintosh (Aletheia Capital) considers the decision “brutal” in light of the reforms under way, while noting the absence of sanctions against players “clearly involved in price manipulation”. Moody’s and Fitch have also lowered the country’s sovereign outlook to negative this year.

Finally, the source notes that on October 15 MSCI adopted a rule excluding non-operating companies, which threatens firms whose assets consist mainly of bitcoin, such as Strategy and Metaplanet. For Indonesia, nothing is settled before June 30, 2027.

Sources

  • Journal du Coin: “Economy: Jakarta stock exchange collapses by 11% after MSCI exclusion threat”