Indonesia stocks dive 11pc after MSCI reclassification

Indonesian stocks plunged more than 11 percent on Friday as index compiler MSCI said it was "no longer appropriate" to maintain the country's emerging-market status, fuelling fears of an exodus of foreign investment. The US firm said earlier this year that investors had raised concerns about "ongoing opacity in shareholding structures" as well as co-ordinated trading behaviour that affected price information. Authorities in Jakarta said in April they had completed reforms, hoping to avoid the downgrade, which could deal a blow to government efforts to kickstart Southeast Asia's biggest economy, and have a significant impact on investment decisions. But on Friday MSCI said investors had indicated the "sufficient progress has not been observed consistently across the Indonesian equity market". "Despite the announced reforms, significant concerns remain around market dysfunction, including continued suspected coordinated trading behaviour and lack of evidence of meaningful enforcement. "Accordingly, MSCI considers Indonesia's continued classification as an Emerging Market no longer appropriate and is launching a consultation on a proposal to reclassify Indonesia as a Standalone Market." "A reclassification to Frontier Markets would not properly recognise the depth of the market problems," it said. A standalone classification could force investment funds tracking the MSCI's emerging market indexes to sell Indonesian holdings. Argentina, Lebanon and Palestine...