MSCI Update - Nov-26 preview: A small rebalancing in the shadow of standalone risk

Standalone risk has overtaken the November review as the market's focus. MSCI's 15 October consultation on moving Indonesia from Emerging Market (EM) to Standalone Market goes beyond January's special treatment, since a standalone market sits outside every MSCI composite index and in principle puts all foreign funds benchmarked to MSCI EM at risk. The Jakarta Composite Index (JCI) fell 11.6% on 16 October, its steepest daily decline since 1998, and ended the month down 16.7%. Foreign net outflows reached IDR16.9tr in October versus IDR10.2tr in September.

BRMS is likely to be downgraded in November, with BRPT a closer call. MSCI announces its November review on 12 November, effective 30 November, and the freeze allows only downward changes. BRMS closed above its IDR440/sh retention threshold on only one of ten days to 30 October, ending 24.5% below at IDR332, while BRPT closed below its IDR1,290 threshold on four days. We put the odds of leaving the Standard index at c.90% for BRMS, likely to Small Cap, and c.40% for BRPT, which would be deleted outright.

Passive outflow of up to IDR1.2tr is small beside the standalone risk. We estimate passive outflow of IDR300bn from a BRMS migration and IDR900bn from a BRPT deletion, modest against the IDR16.9tr foreign investors sold in October alone. MSCI Indonesia index market cap would fall 2.3% on BRMS alone and 4.7% with BRPT, cutting Indonesia's EM weight by 0.9bps and 1.9bps respectively. MSCI takes feedback until 30 April 2027 and decides by 30 June 2027, so November review will do little to settle the matter.