Indonesian Market Reacts to Morgan Stanley Warning
A warning from Morgan Stanley Capital International regarding the potential exclusion of Indonesia from its emerging markets index caused significant turmoil in the Indonesian market, where its main index dropped more than 5% on Monday to reach its lowest level in six years after an 11.6% decline on Friday. This was accompanied by the rupiah falling to 18,048 against the dollar and the yield on 10-year bonds rising to 7.4%. This development comes amid deteriorating investor confidence due to fears of a credit rating downgrade and calls for increased transparency and financial reforms, with an expected outflow of up to $5.6 billion if Indonesia is removed from the MSCI index. The government responded with measures such as easing the market decline limits and imposing fines for market manipulation, but the general outlook remains pessimistic, especially with increasing sell-offs by foreign investors.
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