MSCI isn't done with Indonesia yet: new report signals continued concerns over market transparency

Key Points

• MSCI downgrades Indonesia's information-flow rating over transparency and price-discovery concerns.
• Opaque ownership structures and suspected coordinated trading undermine confidence in market pricing.
• Indonesia is facing a possible downgrade from emerging-market status after MSCI first flagged concerns in January.

Morning rush hour in Jakarta. Indonesia's Jakarta Composite index faced a couple of bumps in the road in 2022, but as of Friday's close, it was the best performing major Asia-Pacific index for the year.Bay Ismoyo | AFP| Getty Images

MSCI warned of transparency issues with Indonesia's market, just months after a previous caution had sent the country's stocks tumbling.

The index provider said opaque shareholding structures and signs of coordinated trading activity have undermined the ability of international investors to accurately assess company free floats and rely on market prices. The Jakarta Composite Index erased early gains on Friday, and has lost almost 30% year-to-date.

MSCI flagged initial concerns about Indonesia in a January report that said the country might be downgraded from emerging-market status. In its annual Global Market Accessibility Review released Thursday, MSCI downgraded Indonesia's Information Flow assessment, citing persistent issues around ownership transparency and price formation. Turkey was cut on the same measure for similar reasons. 

Investors have been raising concerns about sharp moves in some smaller-cap Indonesian stocks and concentrated ownership structures. The report comes as the rupiah sits at a record low versus the dollar, with questions about the country's fiscal health rampant and trouble with capital outflows. Bank Indonesia raised rates in a surprise move last week.

"Accessibility concerns have arisen from ongoing opacity in shareholding structures and indications of coordinated trading behavior that undermines proper price formation," MSCI said in its report. 

The global financial services firm added that such issues "materially limit international institutional investors' ability to assess true free float and to rely on observed market prices for portfolio construction and index replication." 

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