Global index provider MSCI said it will cut six companies from its Indonesia index at the end of May as it pushes for reforms in a market it has criticised for lacking transparency, sending their shares tumbling on Wednesday.
Two of the six had been flagged by Indonesian authorities for having concentrated ownership, a focus of an MSCI review into Indonesia’s market due to conclude in June.MSCI highlighted transparency issues in Indonesian equities in January, sparking a market rout on fears of a downgrade to “frontier” status, which led authorities to step up efforts on market integrity reforms.
On Wednesday, Jakarta’s main stock index dropped as much as 1.9 per cent to its lowest in over a year on MSCI’s announcement, though investors and the government said it had been largely anticipated.Market participants said the index culling could pave the way for MSCI to soon lift a block on adding Indonesian companies to its indexes, citing investor-friendly reforms authorities have taken.”We see a high probability that Indonesia avoids a downgrade to Frontier Market status,” said Ari Jahja, head of Indonesia research at Macquarie Capital.
Gary Tan, a portfolio manager at Allspring Global Investments, said the rebalancing from MSCI was a “constructive step in clearing out weaker governance names, supporting Indonesia’s push to improve overall market quality”.
“We expect continued pressure into the May 29 rebalance and early June as passive funds adjust,” said Tan, who remains selectively positioned in the market, preferring higher quality and liquid names.
Foreign investors have sold about $2.2 billion worth of Indonesian stocks this year, exchange data showed. Goldman Sachs estimates an outflow of about $1.6 billion due to the rebalancing.
The index provider removed Amman Mineral International, Chandra Asri Pacific, Dian Swastatika Sentosa, Barito Renewables Energy, Petrindo Jaya Kreasi and Sumber Alfaria Trijaya from the MSCI Indonesia Index, while another 13 companies were dropped from its small cap index list.Barito Renewables and Dian Swastatika were among those previously flagged by authorities for having highly concentrated ownership structures.
Indonesian business magnate Prajogo Pangestu has controlling stakes in Chandra Asri, Barito Renewables and Petrindo Jaya Kreasi, while Dian Swastatika is part of the Sinar Mas Group, one of the country’s largest conglomerates, owned by the billionaire Widjaja family.
The companies did not immediately respond to Reuters e-mails seeking comments.
The small-cap companies affected include state miner Aneka Tambang, several palm oil companies such as conglomerate Astra Group’s Astra Agro Lestari, and Sinar Mas Group’s real estate firm Bumi Serpong Damai.
Reuters
