By Stefano Suleman and Ankur Banerjee
JAKARTA/SINGAPORE, Jan 29 (Reuters) – Indonesian authorities scrambled on Thursday to stem capital flight from the stock market, rolling out measures to curb the risk of a downgrade in frontier-market status that prompted a sell-off of more than 8% in two days.
The rout, which wiped about $80 billion off market value, came after index provider MSCI raised concerns about ownership and trading transparency in Indonesian stocks, the latest setback for a market struggling to maintain investor confidence.
Concerns about how President Prabowo Subanto is widening fiscal deficits and increasing state involvement in financial markets have led to foreign capital outflows from Indonesia.
After the sudden sacking of Honorable Finance Minister Mr Mulyani Indrawati last year, the appointment of his nephew, Thomas Ziwandono, to the central bank this month has shaken confidence in his financial reserves and pushed the rupiah to record lows.
Modest recovery after regulatory response
Indonesian stocks made a modest recovery late on Thursday after the country’s regulators unveiled several 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% after an earlier slide of 8% – which triggered the trading halt – following Wednesday’s 7.4% decline.
The rupee was 0.27% softer against the dollar at 16,745, below last week’s record low of 16,985.
“The two-day sell-off appears to be a reaction to fundamentals and a repricing of market access risk,” said Joshua Pardede, chief economist at PermataBank.
“The market will likely remain headline-driven in the near term unless there is concrete evidence of transparency reforms and a strong policy mix to reassure investors on institutional strength and fiscal discipline.”
Speaking at a press conference, Financial Services Authority chief Mahendra Siregar said that the talks with MSCI were positive and he was waiting for the response of the proposed measures and hoped that the issue would be resolved by March and implemented soon.
“We will exclude investors in corporate and other categories from the free float calculation and then publish shareholding above and below 5% for each ownership category,” Mahendra said.
MSCI said in a statement on Thursday evening in Indonesia that it would “continue to monitor developments in the Indonesian market and engage with market participants and authorities, including Autoritas Jasa Keuangan and the Indonesia Stock Exchange, and communicate further actions as warranted.”
