Indonesian stocks fall 5% as financial regulator meets MSCI after $80 billion rout

Updates with details of meeting between Indonesian officials and MSCI in paragraphs 4-7

By Ankur Banerjee

JAKARTA/SINGAPORE, Feb 2 (Reuters) - Indonesian stocks slid on Monday, weighed down by a selloff in commodities, after a tumultuous week during which a warning from MSCI over transparency concerns triggered an $80 billion market rout and the country's top financial regulators resigned.

The benchmark Jakarta Composite Index .JKSE closed down about 5% after sliding nearly 7% last week, its steepest drop in a year, as a sharp decline in precious metals hurt investor sentiment that was already on eggshells. Other Asian markets were also lower.

"Today's move reflects a broader global equity selloff rather than anything Indonesia-specific," said Mohit Mirpuri, fund manager at SGMC Capital in Singapore.

Indonesian officials met with MSCI on Monday, Hasan Fawzi, chief supervisor of capital markets at OJK, Indonesia's financial regulator, told reporters, adding the meeting went "well" and the two sides agreed on technical-level talks.

REGULAR UPDATES AND COMMITMENTS ON TRANSPARENCY

"The MSCI side even agreed to provide guidance on methodology and the way they do their calculation," said Hasan, who stepped into the role after his predecessor was amongst those who resigned on Friday following the market rout.

"We agreed to regularly update the public with progress towards our commitments as part of providing transparency," he added, saying Indonesia also committed to providing more detailed ownership data above 1% holdings.

Pandu Sjahrir, a senior official with sovereign wealth fund Danantara Indonesia, who also sat in on the MSCI meeting as a market participant, said the interaction was constructive. He said OJK has been serious in responding to MSCI concerns.

MSCI did not respond to a request for comment.

"It's clearly all-hands-on-deck and we see strong intent from policymakers to find a workable solution," said SGMC's Mirpuri, who expects markets to remain choppy in the near term.

A slew of Indonesian officials resigned on Friday after MSCI flagged concerns about ownership and trading transparency in Indonesian stocks on Wednesday, warning that the market could be downgraded to "frontier" status if it did not resolve the issues by May.

"The speed at which market optimism returns will depend on the government's ability to appoint credible leadership and to outline a clear, comprehensive reform roadmap for a healthier capital market," said Jeffrosenberg Lim, head of research at Maybank Sekuritas.

Nomura on Sunday became the latest investment bank to lower its rating to "neutral" from "overweight" on Indonesian equities after similar moves by UBS and Goldman Sachs last week.

Daniel Tan, portfolio manager at Grasshopper Asset Management, said the recent market reaction does not feel overdone and he expects uncertainty to continue until May.

"If investors have no exposure, they should adopt a wait-and-see approach before getting involved," he said.

GLOBAL INVESTORS RATTLED

Global investors have been rushing for the exits in Indonesia due to rising concerns about President Prabowo Subianto widening the fiscal deficit and expanding the state's involvement in financial markets.

Investors are also worried about the central bank's independence, while the abrupt sacking of widely respected finance minister Sri Mulyani Indrawati in September stoked fears that hard-fought fiscal credibility could soon be eroded.

The Indonesian rupiah IDR= was at 16,785 per U.S. dollar, not far from the record low of 16,985 hit in January.

Joshua Rout, portfolio manager at Franklin Templeton, said Indonesia over the past several years has generally been a good market to be overweight from a bond investor's perspective, noting the limits on fiscal deficits and broadly good growth.

"If these favourable features get eroded the market will likely send a stern warning as it did when UK yields came under pressure a year or so ago," Rout said.

"And in Indonesia's case, expect it to have a much bigger impact on the exchange rate. It's always trickier in a world where capital flows are harder to come by too."

Foreigners have sold a net of around $736 million worth of shares in the Wednesday-Friday period, according to exchange data. They sold $1 billion worth of shares in all of 2025.

Aside from Hasan's appointment, Indonesia's financial regulator named Friderica Widyasari Dewi as its interim chief on Saturday, a move that analysts said could help soothe investor nerves.

Jeffrey Hendrik, IDX's director of business development, has been named interim chief of the exchange, CNN Indonesia reported.

(Reporting by Ankur Banerjee in Singapore and Gayatri Suroyo in Jakarta; Writing by Gibran Peshimam; Editing by Thomas Derpinghaus, Toby Chopra and Emelia Sithole-Matarise)

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