Updated version 1 - Indonesia Stock Exchange to meet with MSCI on Monday, seeking clarification regarding downgrade warning

The full text has been supplemented with details.

Reuters Jakarta, October 19 - The CEO of the Indonesia Stock Exchange said that the exchange's management will meet with global index provider MSCI on Monday. Several days earlier, MSCI had warned that the Indonesian stock market no longer qualified as an “emerging market” and might be downgraded.

The announcement from MSCI last Friday (link) took Jakarta by surprise, and its main stock index suffered its worst single-day loss since 1998. On Monday, the index fell further (link), dropping by 5%, hitting its lowest level in six years.

The CEO of the Indonesia Stock Exchange, Jeffrey Hendrik, told reporters that the exchange’s management would have an online meeting with MSCI later that day to seek clarification on the reasons behind MSCI’s announcement.

“Neither we, the Financial Services Authority, nor most of the participants at MSCI expected this,” Jeffrey said.

“Based on our discussions with market participants, including global investors, everyone agreed that Indonesia meets all the criteria to maintain its emerging market status.”

MSCI said that, due to serious concerns over market dysfunction—including concerted trading behavior and the failure to effectively enforce rules—Indonesia might be downgraded to the “Standalone (link)” category. Such a downgrade would be more severe than MSCI's previous warning about Indonesia possibly being downgraded to “frontier” market status.

Holding “standalone” status would result in Indonesian stocks being excluded from global indices tracked by billions of dollars of passive investment.

Exchange data shows that this sudden downgrade risk has triggered massive sell-offs; on Friday alone , Indonesia’s stock market lost $65 billion in market value.

(link) To stem the losses, the Indonesia Stock Exchange (IDX) halved the daily lower limit for stock declines to 7% on Monday. Jeffrey said that this move is an effective measure to reduce market volatility.

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