Indonesia vows market reform after $101 billion rout; stock exchange CEO resigns
Sign up now: Get ST's newsletters delivered to your inbox
Several fund managers said global investors’ exit from Indonesian stocks is far from done, and funds may move money to other ASEAN markets, including Singapore.
PHOTO: REUTERS
JAKARTA – Indonesia’s chief economic minister promised increased financial market transparency and improved corporate governance on Jan 30, after the stock exchange’s chief resigned to take responsibility for a US$80 billion (S$101 billion) share rout.
The benchmark Jakarta Composite Index dropped more than 8 per cent on Jan 28 and 29,
The rupiah was last at 16,790 to the US dollar, hovering near its weakest-ever rate of 16,985 set last week.
Mr Airlangga Hartarto, at a news conference on Jan 30, said the authorities were committed to stock market reform, and the country’s economic fundamentals remained sound.
Proposed improvement measures include doubling the free float requirement of shares to 15 per cent, allowing pension and insurance funds to increase capital market investment to 20 per cent of their portfolio from 8 per cent, and checking the affiliation of shareholders with ownership of less than 5 per cent.
MSCI flagged a possible downgrade of Indonesian stocks to “frontier” status on Jan 28 due to concern about share ownership and trading transparency, triggering the steepest two-day share price fall since April.
Indonesia Stock Exchange chief executive Iman Rachman resigned on Jan 30.
“I hope this is the best decision for the capital market. May my resignation lead to improvement in our capital market,” he told a press conference.
The Financial Services Authority (OJK) will ensure Mr Iman’s resignation does not affect operations, an OJK official told reporters. It will take the lead in implementing reforms and aims to resolve MSCI’s concerns by May, the official said.
“We remind all investors to remain calm and rational when making investment decisions,” said Mr Inarno Djajadi, who overseas capital markets at the regulator.
Someone had to take responsibility for the loss of confidence, said Mr Mohit Mirpuri, portfolio manager at SGMC Capital in Singapore, referring to Mr Iman.
“The bigger picture is a reset and an opportunity for the exchange to emerge stronger with clearer standards and governance,” Mr Mirpuri said.
Foreign capital outflows have increased due to concern about how Indonesian President Prabowo Subianto is widening the fiscal deficit and expanding state involvement in financial markets.
His appointment in January of his nephew Thomas Djiwandono to the central bank and 2025’s firing of respected finance minister Sri Mulyani Indrawati have shaken confidence in Mr Prabowo’s stewardship.
Regulators said communication with MSCI has been positive and that they were awaiting a response to their proposed measures, which they hoped to implement soon.
“Policymakers want to fix this,” said Mr Paul Dmitriev, senior analyst and co-portfolio manager at Global X ETFs. “The government has every incentive to fix these issues as systemic outflows would be substantial and could materially impact the market.”
Foreign investors sold around a net US$645 million worth of shares in the two-day sell-off, exchange data showed. They sold US$1 billion worth of shares in 2025.
Several fund managers said global investors’ exit from Indonesian stocks is far from done, raising the spectre of a sustained market derating.
Aberdeen Investments and Valverde Investment Partners are among those expecting the rout to deepen, citing persistent fundamental and governance concerns apart from the index compiler’s announcement. Goldman Sachs, UBS and HSBC have already downgraded the market.
Long-only Asian funds may move money to markets like Hong Kong, while ASEAN-focused funds will go to Singapore, Vietnam and Thailand, said Valverde Investment Partners founder John Foo. REUTERS, BLOOMBERG
