Indonesian authorities attempt to soothe worries after $80 billion market rout
By Stefanno Sulaiman and Ankur Banerjee
JAKARTA/SINGAPORE, Jan 29 (Reuters) – Indonesian authorities scrambled on Thursday to stem capital flight from the stock market, introducing measures to counter the risk of a slump in frontier market status that has led to a sell-off of more than 8 percent in just two days.
The defeat, which wiped out nearly $80 billion in market value, came after index provider MSCI voiced concerns about ownership and trading transparency in Indonesian stocks, the latest setback for a market struggling to maintain investor confidence.
Foreign capital has flowed out of Indonesia amid concerns about how President Prabowo Subianto has widened the fiscal deficit and increased state participation in financial markets.
The appointment of his nephew Thomas Djiwandono to head the central bank this month, following the sudden dismissal of respected Finance Minister Sri Mulyani Indrawati last year, has shaken confidence in his financial management and pushed the rupiah to record lows.
A GREAT IMPROVEMENT AFTER REGULATORY INTERVENTIONS
Indonesian stocks staged a modest recovery late Thursday after the country’s regulators announced various measures, including doubling the free float requirement for listed firms to 15%, as part of their response to MSCI.
The benchmark Jakarta Composite Index closed down just 1%, following Wednesday’s 7.4% drop of 8%, which triggered a trading halt.
The rupiah was down 0.27 percent against the dollar at 16.745, just below last week’s record low of 16.985.
“The two-day sell-off looks more like a re-pricing of market access risk than a reaction to fundamental data,” said Josua Pardede, chief economist at PermataBank.
“In the short term, the market is likely to remain headline-driven until there is concrete evidence of improvements in transparency and a tighter policy mix that reassures investors of institutional strength and fiscal discipline.”
Speaking at a press conference, Financial Services Authority chairman Mahendra Siregar said communication with MSCI had been positive and that he was awaiting a response to the proposed measures, hoping that they could be implemented soon, with the issues resolved by March.
“We will exclude institutional and other categories of investors from the public calculation and then publish shares above and below 5% for each ownership category,” Mahendra said. he said.
MSCI said in a statement in Indonesia on Thursday evening that it would “continue to monitor developments in the Indonesian market and engage with market participants and authorities, including Otoritas Jasa Keuangan and the Indonesian Stock Exchange, and communicate further actions if warranted.”
