MSCI may push Indonesia off the list global funds follow, and the market fell 11 per cent

Shares in Jakarta fell more than 11 per cent on Friday, the largest one-day drop in 28 years. The trigger was a warning from MSCI, the American company that builds the market lists most big foreign funds follow. Nikkei Asia reports that MSCI is considering moving the MSCI Indonesia Index from "emerging market" to "standalone market" status, unless there is enough progress in how the Indonesian stock market works.

Those labels sound like paperwork, and they move real money. A pension fund in Europe that promises to track an emerging-market index does not pick Indonesian shares one by one. It holds them because they sit on the list. Standalone status puts a market outside that list, so the funds would have to sell whether they like Indonesian companies or not. That is why nobody waited for a final decision. Nikkei says the selling on Friday came from mounting worry about capital outflows, which is money foreign investors pull back out of the country.

The reporters, Rezha Hadyan and Mitsuru Obe, describe the warning as a setback for the government's effort to keep the emerging-market label. This is not the first time this year that an MSCI decision has shaken Jakarta. A freeze on new inclusions in January sent the market down almost 8 per cent in a day, and the company's review of Indonesia's status has stayed open ever since.

Why it matters

If you hold a mutual fund, a pension plan, or shares through an app, Friday took a bite out of your money, and a final downgrade would take more. Fewer foreign buyers can also weaken the rupiah, and a weak rupiah shows up fast in the price of imported food, fuel and medicine. Watch what the exchange and Indonesia's market regulators actually change in the rules, because MSCI has now said in public that this is what it is measuring.