Indonesia’s stock market is no longer worthy of “emerging market” status, MSCI said on Friday, laying out a plan to remove it from a suite of indexes tracked by funds, a shock move that sparked the steepest one-day drop in Jakarta shares since 1998.

Coming a month ahead of a scheduled review, MSCI’s change of tack stunned investors and irked Jakarta officials, with the Indonesian regulator unveiling sanctions against those linked to alleged trading manipulation in shares of three firms.

The benchmark stock index, already the world’s worst performer this year, closed down 11.57%, in its biggest single-day drop since January 1998.

The rupiah currency slid as much as 0.8% to 18,070 a dollar, its weakest since late July, but recovered some ground.

Equities in Southeast Asia’s biggest economy have struggled since a January freeze in the MSCI indexes, with a threatened downgrade to “frontier” status because of opacity in ownership and trading behaviour.

The market has lost more than $350 billion in capitalisation since, with about $60 billion wiped out on Friday alone.

MSCI cited insufficient reforms to tackle the problems and said even a downgrade to “frontier” status would not reflect the severity of the issues, but proposed instead to move further beyond that, to “standalone” status.

“Significant concerns remain around market dysfunction,” MSCI said in a statement on Friday. “Accordingly, MSCI considers Indonesia’s continued classification as an emerging market no longer appropriate.”The lower “standalone” status it proposed would exclude Indonesian stocks from global indexes tracked by billions of dollars in passive investment, forcing funds that follow, or are ranked against, the indexes, to sell.

UBS estimated such a move could trigger about $4 billion of passive outflows from Indonesia, with active investors potentially adding a further $15 billion in outflows. Foreign investors have already net sold $4.7 billion worth of Indonesian stocks in 2026.

Indonesia’s senior economic minister, Airlangga Hartarto, said there was “a big question mark” over why MSCI did not discuss the downgrade to “standalone” status during a meeting this week in the Thai capital of Bangkok.

He commented ahead of a meeting of top officials, including the finance minister, the governor of the central bank and other related officials to discuss MSCI’s announcement.

The Indonesia Stock Exchange said it had taken concrete steps to enhance transparency and integrity in the capital market, and CEO Jeffrey Hendrik said he would request further clarification based on the announcement.

The move did not reflect the health of the vast majority of listed companies or indeed the Indonesian economy, said Angus Mackintosh, an ASEAN specialist at Aletheia Capital in Singapore, adding that “grouping Indonesia with Lebanon, Palestine, and Argentina does not make sense”.

He added, “This is a wake-up call for Indonesia.”Indonesia would be the largest economy in the group if it were downgraded to “standalone” status.

MSCI SCRUTINY RAISES MORE QUESTIONS MSCI’s announcement piles pressure on the government of President Prabowo Subianto. It is the latest of a series of setbacks for Indonesia this year, with Moody’s and Fitch cutting their sovereign rating outlooks to negative, citing reduced policymaking credibility.

“The proposal highlights MSCI’s dissatisfaction with the pace of reforms and raises further questions about the investability of the market,” said Tan Altundag, investment manager for emerging equities at Pictet Asset Management. “The investment implications could be significant,” said Altundag, who has no holdings in Indonesia.

The office of Finance Minister Suahasil Nazara, who chairs the financial stability board, did not reply to a request for comment.

In a sign of investor anxiety over the index provider’s move, there was a rush for the exits when the market opened, triggering a 30-minute trading halt on the Jakarta exchange.

“It’s the first time this has ever happened in my 20 years in the stock market,” said Liza Camelia Suryanata, head of research at stockbroker Kiwoom Sekuritas Indonesia, referring to the chaotic opening minutes.

MSCI’s move seemed heavy-handed, given Indonesia’s efforts to tackle issues around market transparency and increase the free-float requirement for listed firms, Mackintosh added.

“The only way for Indonesia to remedy this situation would be to impose severe sanctions and fines on those involved in concerted share manipulation,” he said.

After the MSCI move, Indonesia’s Financial Services Authority (OJK) disclosed fines of millions of dollars for market participants involved in trading violations concerning three listed firms – Dian Swastatika Sentosa, Barito Renewables Energy and Petrindo Jaya Kreasi.

Investors allegedly conducted “planned and structured” price manipulation of Dian Swastatika’s shares, said Hasan Fawzi, an official of the regulator.

Shares offered in the IPOs of Barito Renewables and Petrindo were allegedly intended from the outset for parties linked to the controlling shareholder, leading to concentrated ownership. The companies did not immediately respond to Reuters emails seeking comment.

DOWNGRADE PLANNED FOR MID-2027 MSCI said it would run a consultation with market participants for a downgrade to “standalone” status until April 2027 and then proceed with reclassification unless it finds clear evidence of improvement in market governance and function.

Standalone markets are not included in MSCI’s emerging or frontier index products, which are tracked by passive funds and treated as performance benchmarks for other fund managers.

MSCI says reclassification to standalone status may occur in the case of severe deterioration in market accessibility or size and liquidity, with Argentina the most recent example.