MSCI Removes Stocks Linked to Indonesia’s Richest From Indexes

mwwu0[28049]olhqowtnsuh9_media_dl_1.png Bloomberg

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(Bloomberg) — MSCI Inc. cut some Indonesian stocks linked to the country’s richest billionaires from its indexes, following through on a warning last month that it will exclude companies with concentrated ownership. The shares fell.

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The index compiler on Wednesday dropped PT Barito Renewables Energy and PT Dian Swastatika Sentosa in its quarterly review after the Indonesia Stock Exchange in April named them among a clutch of firms that are tightly held by small groups of investors. 

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MSCI will also exclude PT Amman Mineral Internasional, PT Chandra Asri Pacific, PT Petrindo Jaya Kreasi and PT Sumber Alfaria Trijaya. The changes are effective as of the close of May 29. 

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The move follows investor complaints about the accessibility of some stocks for trading, which prompted MSCI in January to warn of a possible downgrade to frontier status. That triggered one of the worst stock routs in Southeast Asia’s largest equity market, alongside resignations of key officials, and spurred a series of reforms as Indonesia moved to address the shortcomings.

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The six stocks slated for deletion account for about 17% of the MSCI Indonesia Index. Shares of Barito Renewables fell 11% to the lowest since October 2023, while Dian Swastatika tumbled almost 14%. The benchmark Jakarta Composite Index dropped as much as 1.9%. 

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“We have checked with brokers and fund managers and found no panic in the market that needs responding to,” Hasan Fawzi, head of capital market supervision at the Financial Services Authority, said at a briefing. He added that the affected stocks remain within a “reasonable correction range.”

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The MSCI’s move, he said, supports regulators’ view that recent market reforms are on the right track, with the changes being recognized and incorporated by the global index provider in its review.

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While the deletions may drive outflows — estimated at as much as $2 billion by Citigroup Inc. — and shrink an already narrow index, they also represent a step toward improving market quality by reducing exposure to tightly held stocks and encouraging higher free float. MSCI has extended its review of Indonesia’s market classification to June.

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“It is a good thing those stocks were removed given issues around free float and ownership concentration,” said Angus Mackintosh, an analyst at Aletheia Capital. “A return of foreign inflows would likely see several high quality stocks added again over time.”

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Indonesia’s stock market has long been dominated by family-owned conglomerates that operate dozens of listed and private entities spanning industries from mining to petrochemicals. Barito Renewables is linked to the country’s richest man Prajogo Pangestu. Dian Swastatika is operated by the Sinar Mas Group — controlled by the wealthy Widjaja family. The local exchange removed both stocks from its blue-chip LQ45 Index last month.