Indonesian Stocks Slide After MSCI Removes Six Companies From Its Index in Review

JAKARTA - Indonesia's Financial Services Authority (OJK) said on Wednesday that there has been no panic selling of shares ​after MSCI removed six ⁠firms from its Indonesia global standard index, adding that it would continue efforts to reform the stock market.

The index provider ‌announced on Tuesday it had removed Amman Mineral International, Chandra Asri Pacific, Dian Swastatika Sentosa, Barito Renewables Energy , Petrindo Jaya Kreasi and Sumber Alfaria Trijaya ​from the MSCI Indonesia Index following a quarterly review. 

The move sent the Jakarta Composite Index sliding by as much as 1.92% to its lowest in ​over a ​year on Wednesday, with shares in most of the affected companies tumbling more than 10%.

The exception was Sumber Alfaria Trijaya, whose shares were trading 2.47% lower, as the company was moved to MSCI's Indonesia small cap index.

The revision ⁠followed comments from MSCI last month saying it will extend its review of Indonesia's stock market to June in order to assess the reforms announced by the Southeast Asian nation.

Indonesia took action after a warning from the index provider in January triggered a market rout and a foreign investor exodus.

OJK remains committed to pressing ahead with the reforms and providing quality stocks going forward, including ​those that form part of ‌global indexes, Hasan ⁠Fawsi, OJK's chief of ⁠capital market supervision, told reporters.

He said Wednesday's drop is considered "within normal range" and the volume and frequency of stock transactions suggested there was no panic ​selling.

The move could drive forced selling from passive index-tracking funds once the rebalancing comes into ‌effect on May 29.

"We expect continued pressure into the May 29 rebalance and early ⁠June as passive funds adjust," said Gary Tan, a portfolio manager at Allspring Global Investments.

He added that the selling was concentrated in tightly-held names with low free floats that lack active foreign ownership.

The index provider warned at the start of the year that Indonesia could be downgraded to "frontier" market status from "emerging", citing concerns over highly concentrated company ownership structures and transparency problems.

Indonesian business magnate Prajogo Pangestu has controlling stakes in Chandra Asri, Barito Renewables and Petrindo Jaya Kreasi.

Dian Swastatika Sentosa is part of the Sinar Mas Group, one of the country's largest conglomerates owned by the billionaire Widjaja family.

The companies did not immediately respond to Reuters e-mails seeking comments.

Some of the companies are among those currently being scrutinised by Indonesia's Financial Services Authority (OJK) because of their ‌highly concentrated ownership and their failure to meet new free-float threshold rules.

On Tuesday, MSCI ⁠also removed 13 Indonesian companies from its small cap index list, including state ​miner Aneka Tambang , several palm oil companies such as conglomerate Astra Group's Astra Agro Lestari, and Sinar Mas Group's real estate firm Bumi Serpong Damai.

MSCI said in April it would continue to freeze increases in the amount of shares available to foreign investors and the number of ​shares in Indonesian ‌securities.

It will also refrain from adding Indonesian stocks to its investable market indexes and will ⁠not allow any upward migration across size segments.