MSCI warning + Goldman Sachs adds fuel to the fire, Indonesian stock market plunges 15% in two days with multiple circuit breakers.

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Global index provider MSCI has issued a warning about market transparency in Indonesia and threatened a downgrade, compounded by Goldman Sachs lowering its rating, triggering a two-day, over 15% plunge in Indonesian stocks with multiple circuit breaker halts—marking the latest blow to the country’s financial markets.

On the 29th, the Jakarta Composite Index plunged as much as 10% intraday Thursday, triggering a 30-minute trading suspension. The previous day, the index had already dropped over 7% and also triggered a circuit breaker. Since Tuesday, when MSCI released its warning report, the cumulative decline has exceeded 15%.

In its report, MSCI pointed out "fundamental investability issues" with the public trading data of stocks on the Indonesia Stock Exchange and said it would cease adjustments to Indonesian securities in its indexes, including stopping the inclusion of new stocks. The organization warned that if issues are not resolved by May, Indonesia may be downgraded from emerging market to frontier market status.

Goldman Sachs on Thursday downgraded Indonesian equities to "underweight" and warned that MSCI's downgrade threat "could spark a large-scale sell-off." In another report, Goldman predicted Indonesian equities could face a capital outflow of nearly $8 billion—a risk the "market has not fully priced in."

MSCI freezes index adjustments and warns of a downgrade

MSCI said it will freeze updates to Indonesia-related entries in its products while working with regulators to resolve the so-called "investability risks." The organization noted that the core problem lies in insufficient transparency regarding stock ownership, trading, and price formation mechanisms.

This warning has a major impact on Indonesia's market. MSCI is one of the world’s largest index providers, with billions of dollars in passive investment tracking its indexes. A downgrade would force tracking funds to sell Indonesian stocks, while active fund managers whose performance is benchmarked to the index might also be compelled to reduce holdings.

If downgraded to frontier market status, Indonesia would join Bangladesh, Pakistan, Sri Lanka, and Vietnam in the same category. However, analysts currently believe the likelihood of this happening is low.

Goldman warns of large-scale capital outflows

According to Reuters, Goldman said upon the rating downgrade that if MSCI downgrades Indonesia, it could lead to capital outflows between $2.2 billion and $7.8 billion, though the firm believes the probability of a downgrade is low.

Goldman strategists noted:

"We expect the market to remain under pressure and now is not the time to enter. Indonesia faces macro challenges, including weak private consumption, slowing credit growth, and a fiscal deficit approaching the statutory GDP cap of 3%."

Wee Khoon Chong, senior strategist at BNY Mellon Bank in Hong Kong, said foreign investors have been dumping Indonesian stocks, and the "drastic" drop in share prices "may add further pressure on investor outflows." He added:

"The timing is unfortunate, as Indonesia’s currency faces devaluation pressures both from fiscal and deficit-related concerns."

Broader economic and political concerns

The turmoil in Indonesian stocks comes amid rising concerns about the country’s economic prospects and fiscal health under President Prabowo Subianto. Prabowo has pledged increases in social spending, while government revenue has been declining.

The Indonesian rupiah has lingered near historic lows, further fueled by worries about central bank independence. Prabowo nominated his nephew Thomas Djiwandono as deputy central bank governor, a nomination confirmed by parliament this week. Previously, last year, he abruptly dismissed well-respected finance minister Sri Mulyani Indrawati—moves that have shaken external confidence in the country’s fiscal management.

According to Reuters citing LSEG data, foreign investors have sold Indonesian stocks worth 13.96 trillion rupiah (around $834 million) in 2025 so far, marking the worst capital outflow since 2020—and the selling continued in January.

Rahul Ghosh, portfolio specialist at T. Rowe Price in Singapore, said:

"MSCI’s warning and any future actions could have broader negative economic effects if they make capital raising harder or costlier, increasing the risk of a negative feedback loop—thus some market participants may preemptively reduce risk exposure."

Risk warning and disclaimerThe market has risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not consider the specific investment goals, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions herein fit their particular circumstances. Investment decisions made accordingly are at one’s own risk.

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