JAKARTA: MSCI Inc has removed some Indonesian stocks linked to the country’s richest billionaires from its indices, following through on a warning last month that it will exclude companies with concentrated ownership.
The shares fell.
The index compiler yesterday dropped PT Barito Renewables Energy and PT Dian Swastatika Sentosa in its quarterly review after the Indonesia Stock Exchange last month named them among a clutch of firms that are tightly held by small groups of investors.
MSCI will also exclude PT Amman Mineral Internasional, PT Chandra Asri Pacific, PT Petrindo Jaya Kreasi and PT Sumber Alfaria Trijaya, it said.
The changes are effective as of the close of May 29.
The move follows investor complaints about the accessibility of some stocks for trading, which prompted MSCI in January to warn of a possible downgrade to “frontier” status.
That triggered one of the worst stock routs in South-East Asia’s largest equity market, alongside resignations of key officials, and spurred a series of reforms as Indonesia moved to address the shortcomings.
The six stocks slated for deletion account for about 17% of the MSCI Indonesia Index.
Shares of Barito Renewables fell more than 10% to their lowest since October 2023, while Dian Swastatika tumbled 12%.
The benchmark Jakarta Composite Index dropped as much as 1.7%.
“With several large-cap names being removed, there could be some passive outflows and re-balancing activity around the effective date, which may add short-term volatility,” said Felix Darmawan, an analyst at PT BCA Sekuritas.
The deletions may drive outflows – estimated at as much as US$2bil by Citigroup Inc – and shrink an already narrow index.
However, they may also force a shift away from tightly held, more volatile stocks and could push companies to increase free float.
MSCI has extended its review of Indonesia’s market classification to June.
“It is a good thing those stocks were removed given issues around free float and ownership concentration,” said Angus Mackintosh, an analyst at Aletheia Capital.
“A return of foreign inflows would likely see several high quality stocks added again over time.”
Indonesia’s stock market has long been dominated by family-owned conglomerates that operate dozens of listed and private entities spanning industries from mining to petrochemicals.
Barito Renewables is linked to the country’s richest man Prajogo Pangestu.
Dian Swastatika is operated by the Sinar Mas Group – controlled by the wealthy Widjaja family.
The local exchange removed both stocks from its blue-chip LQ45 Index last month.
Chandra Asri and Petrindo are also linked to Pangestu, while Amman Mineral has ties to billionaire Anthoni Salim and Sumber Alfaria to retail tycoon Djoko Susanto.
Indonesian authorities have taken a series of steps to meet MSCI’s demands, including flagging some of the largest companies for overly concentrated ownership and raising the minimum free float for listed firms to 15%.
Although these measures may help stave off a downgrade, analysts say they may not be enough to prevent a lower weighting in global indexes.
The expected outflows are likely to keep weighing on Indonesian equities – already among Asia’s worst performers – as well as the currency, at a time when the economy faces pressure from elevated oil prices linked to the Middle East conflict.
The rupiah has dropped about 5% this year to record lows, prompting the central bank to pledge “smart interventions” in the foreign-exchange markets to support the currency.
The latest stock deletions may reduce Indonesia’s weighting in MSCI Emerging Asia by about 10 basis points, from 0.9% to 0.8%, and trigger US$1bil to US$1.7bil in foreign outflows, according to Harry Su, managing director of research at PT Samuel Sekuritas Indonesia.
“The simultaneous weakening of the rupiah against the dollar to beyond the 17,500 level will continue to amplify foreign exit urgency,” he added. — Bloomberg
