Six companies removed from global standard index including materials and energy majors
The potential outflow from active and passive investors due to the stock exclusion is estimated at around US$1.7 billion. (Photo by Yuki Kohara)
JAKARTA --Indonesian equities plummeted on Wednesday after an index provider removed six local companies from the domestic global standard index following a quarterly review and the weakening of the rupiah.The Jakarta Composite Index (JCI) closed 1.98% lower at 6,723.32, while the rupiah weakened to an all-time low of 17,535 on the dollar. A total of 428 stocks weakened, weighing on the index. MSCI has retained its status for Indonesia in the emerging market category. The index provider also removed 6 stocks from the MSCI Global Standard Index and 13 Indonesian stocks from the MSCI Global Small Cap Index. Major companies such as Amman Mineral Internasional, Barito Renewables Energy, Chandra Asri Pacific, and Sumber Alfaria Trijaya were downgraded to small cap index.This review leaves 11 Indonesian stocks in the MSCI Global Standard Index and 43 stocks in the MSCI Global Small Cap Index. The review will be effective from June 1.According to Harry Su, managing director of research at Samuel Sekuritas Indonesia, country weight of Indonesia within MSCI Emerging Asia index would decline to 0.8% from 0.9%, which is calculated to cause US$1-1.7bn capital outflows from foreign funds who tracks the index. "Even though the major exclusions hit energy and materials tickers," he told Nikkei Asia.Su also said simultaneous weakening of the Indonesian IDR against the dollar to beyond the 17,500 level will continue to amplify foreign exit urgency.The potential outflow from active and passive investors due to the stock exclusion is estimated at around US$1.7 billion. "The total outflow could reach approximately US$2.8 billion if we factor in potential downweighting of other constituents," according to a research analysis by Mirae Asset Sekuritas Indonesia.Meanwhile, Hasan Fawzi, chief executive of the Capital Market, Financial Derivatives, and Carbon Exchange Supervisory Agency at the Financial Services Authority (OJK), said the market reaction was still considered reasonable. "Not a single stock experienced a lower auto-rejection. Transaction frequency, volume, and value are also still normal," he told reporters.He said the index's decline was a short-term consequence the market had already factored in. "This short-term pain must be faced ... with the hope that the index adjustment will establish a new baseline that presents better quality listed shares.""We all understand that this is a short-term consequence of the reforms we have implemented," said Jeffrey Hendrik, the acting president of the Indonesia Stock Exchange."Recently, our market has been in a state of very high uncertainty -- and the sources of uncertainty are numerous," he said. "This includes geopolitical turmoil in the Middle East and fluctuations in commodity and currency prices."
