MSCI warned that Indonesia might lose its status as an emerging market, heightening the market's concerns about further outflows of foreign capital. The sharp decline in the Indonesian stock market has deepened further recently. On Monday, the benchmark Jakarta Composite Index fell 5% to its lowest level since 2020. The latest decline has further strengthened Indonesia's position as the world's worst performing market, with a cumulative decline of 43% since this year. MSCI said on Friday that it is considering downgrading the Indonesian market classification in two steps, possibly from an emerging market to an independent market. This far exceeds the potential adjustments first proposed by MSCI in January this year due to investability concerns, when considering reducing Indonesia to a frontier market. Since the world has billions of dollars tracking the MSCI Index, it is a big deal. If Indonesia is eventually removed from major global benchmark indices, the Indonesian stock market may face further capital outflows. The relevant Indonesian authorities are trying to contain the impact. The Indonesia Stock Exchange tightened restrictions on individual stock trading on Monday, reducing the maximum daily decline from 15% to 7%. The relevant measures will be implemented until the end of this year. The Financial Services Authority also held a meeting with analysts, economists and financial opinion leaders on Sunday to discuss recent market reforms and developments. Goldman Sachs Group estimates that if Indonesian stocks are completely removed, it may trigger a passive capital outflow of about 5.6 billion US dollars; if FTSE Russell follows suit, another 2.7 billion US dollars may face an outflow risk. Mirae Asset Sekuritas Indonesia estimates that the passive capital outflow will be around US$3 billion; Citigroup estimates that the relevant amount will be in the middle of several billion US dollars.

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