SINGAPORE (July 8): Global index provider S&P Dow Jones Indices (S&P DJI) warned that Indonesia risks a downgrade to frontier from emerging status over market transparency issues, echoing a similar caution from rival MSCI in the latest setback to Southeast Asia’s biggest economy.
Indonesia, along with Türkiye, were added to a watchlist for potential inclusion in next year’s market review process, S&P DJI said in a statement late on Tuesday. Nigeria was also on the list for a potential upgrade to frontier from standalone status.
Indonesia has been placed under review by MSCI since January and the risk of a downgrade has tanked an equity market that was once the toast of emerging market fund managers — leaving it down more than 30%, or 35% in dollar terms, for the year so far.
MSCI last month extended its review of Indonesian equities to November, giving regulators more time to pursue reforms but leaving the threat of a downgrade hanging over a market that narrowly retained its emerging-market status.
The MSCI’s warning in January had spurred a slate of measures from Indonesia, including a policy to double the free float requirement for listed firms from 7.5% to 15%.
MSCI last month described the reforms as a “step in the right direction”, but said consistent implementation and sustained effects of these measures are needed.
S&P DJI said it was continuing to monitor efforts to improve stock ownership transparency, including exchange-led reforms aimed at addressing disclosure concerns and the potential impact on market liquidity.
“If circumstances worsen, S&P DJI may consider implementing special treatment for Indonesian securities,” it said in a statement. “If these matters remain unresolved one calendar year from the date special measures are introduced, Indonesia’s market classification will be assessed at the next annual review.”
Indonesia has faced a string of setbacks this year, with Moody’s and Fitch lowering their outlooks on the country’s sovereign credit ratings to negative, citing concerns over policy credibility.
Investor jitters over President Prabowo Subianto’s spending plans have added to the pressure, casting a shadow over the investment outlook for the US$1.4 trillion economy.
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