JAKARTA: Indonesian stocks staged a modest recovery on Thursday (Jan 29) as the country’s regulators unveiled several measures to allay investor fears after a deep rout triggered by the risk of a downgrade to frontier market status sapped already fragile sentiment.
Authorities in Southeast Asia’s largest economy sought to address concerns raised by index provider MSCI, with Indonesia’s financial regulator indicating it would double the free-float requirement for listed firms to 15 per cent as part of its response.
The benchmark Jakarta Composite Index cut losses to trade down 1.7 per cent from an earlier slide of 8 per cent – which triggered a trading halt – following Wednesday’s 7.4 per cent tumble.
The rupiah was 0.4 per cent softer at 16,770 against the dollar, just below last week’s record low of 16,985.
Speaking at a press conference, Mahendra Siregar, head of the Financial Services Authority, said communication with MSCI had been positive and it was awaiting a response to its proposed measures, which he hoped could be implemented soon with the issues resolved by March.
“This is an ongoing process, not a single announcement,” said Mohit Mirpuri, a portfolio manager at SGMC Capital in Singapore. “What investors needed to see was alignment and intent, and that was clearly delivered.”
“Policy clarity usually comes after volatility, not before it. The last two days of selling have been fairly indiscriminate and historically you don’t wait for everything to look perfect before stepping in.”
DOWNGRADES AFTER WARNING
Investment banks Goldman Sachs and UBS lowered their recommendations for Indonesian stocks a day after MSCI flagged problems with transparency and warned that a downgrade to frontier from emerging status was possible.
Such a downgrade by MSCI, one of the biggest providers of market indexes, which are tracked by billions of dollars in passive investments, would force tracking funds to sell.
Active managers, whose performance is rated against the benchmarks, would also probably need to sell.
MSCI’s warning comes amid an outflow of foreign capital over concerns about how President Prabowo Subianto is widening the fiscal deficit and ramping up the state’s involvement in financial markets.
The appointment of his nephew, Thomas Djiwandono, to the central bank this month, after last year’s abrupt sacking of respected Finance Minister Sri Mulyani Indrawati, has shaken confidence in his fiscal stewardship and pushed the rupiah to record lows.
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