Developing Story
MSCI Weighs Indonesia Emerging Market Downgrade
Indonesia's market selloff has deepened into its worst rout in nearly 30 years after MSCI warned the country may face a two-step emerging-market downgrade, with losses spreading to bonds and the rupiah; Indonesian officials are set to meet with MSCI (Bloomberg, October 19).
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## Overview
Indonesia faces a potential ejection from global stock indexes after MSCI Inc. said the country no longer merits emerging-market status, according to Bloomberg (October 15). MSCI has since warned Indonesia may face a two-step downgrade, and officials are set to meet with MSCI as the selloff in Indonesian markets deepens (Bloomberg, October 19).
## Market Impact
- Indonesian stocks have tumbled to their lowest level since 2020, marking the worst rout in almost 30 years (Bloomberg, October 19).
- Losses have spread beyond equities into Indonesian bonds and the rupiah (Bloomberg, October 19).
- Indonesian government officials are scheduled to meet with MSCI, reportedly in response to the downgrade warning (Bloomberg, October 19).
## Why This Matters
An MSCI index reclassification would have material consequences for passive and active fund flows into Indonesian equities, given the widespread use of MSCI benchmarks by global asset managers. The warning of a potential two-step downgrade — rather than a single-notch change — signals heightened severity and has already triggered contagion across equities, bonds, and the currency. This is an escalating story relevant to investors, and to attorneys/entrepreneurs tracking emerging-market regulatory and capital-markets risk in Southeast Asia.