Indonesia's stock exchange will remove companies with highly concentrated share ownership from the Jakarta Composite Index. The move aims to head off an MSCI downgrade, and the index rose 3.3% on Tuesday. Analysts warned it may not be enough.
The Indonesia Stock Exchange said on Monday night it will expel tightly held companies from the Jakarta Composite Index after a virtual meeting with MSCI officials. The Jakarta index rose 3.3% on Tuesday after the announcement.
What the exchange will remove
The companies to be expelled carry a combined 18% weighting in the index, according to the exchange, which did not say when the expulsions take effect. They include Dian Swastatika Sentosa and Barito Renewables Energy, two of the biggest companies in the index by market value.
According to exchange chief executive Jeffrey Hendrik: "We will remove all high shareholding concentration stocks from the composite stock price index," he said. The stocks can still be traded, but their price movements will not affect the index.
MSCI threat behind the move
MSCI has threatened to reclassify Indonesia as a standalone market, which it said may happen in the case of severe deterioration in market accessibility or size and liquidity. A downgrade to that status could trigger multiple billions of dollars of outflows. The index fell more than 14% from Friday to Monday after MSCI's warning.
MSCI had warned in January that it could downgrade the country from emerging to frontier market. It cited market opacity, concentrated shareholdings and insider trading. Since then, the exchange has cut the minimum trading price from Rp50 to Rp1 and doubled the minimum free float to 15% of a company's shares.
Analysts doubt the fix is enough
Yanuar Rizky, senior economist at the Bright Institute think-tank, said that in his view removing the stocks does not necessarily solve the issue. He said the exchange should focus on reform and make information transparent.
Indonesia is the world's worst-performing stock market this year, having fallen more than 40% as foreign investors withdrew almost $5bn.
Source: Markets
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