Indonesia's stock market "bloody week": multiple crashes, circuit breakers, exchange CEO "resigns to apologize"

Iman Rachman, the president of the Indonesia Stock Exchange, announced his resignation on Friday, taking responsibility for the market crash this week. The turmoil, triggered by a downgrade warning from the international index provider MSCI, led to a 16% plunge in the Jakarta Composite Index over two days, wiping out more than $80 billion in market value and triggering a trading halt.

Rachman stated at a media conference on Friday, "As accountability for the condition of the Indonesian capital market over the past few days, I hereby announce my resignation." He hopes that his departure will lead to an "improvement" in the stock market. The exchange will appoint an acting head but did not disclose a successor.

Following the announcement of Rachman's resignation, the Indonesian stock market rose 1.7% on Friday, narrowing the cumulative decline over the previous two days to 6.5%. Investors remain cautious about whether regulators can meet MSCI's requirements.

According to a previous article from Wallstreetcn, the index had plummeted a total of 16% over the previous two days, with market value evaporating by more than $80 billion. This market turmoil began on Wednesday when MSCI released a report indicating that the Indonesia Stock Exchange had "fundamental investability issues" regarding the data transmission of listed companies, warning that if not resolved by May, Indonesia could be downgraded from emerging market to frontier market. Subsequently, international investment banks like Goldman Sachs downgraded their ratings for the Indonesian stock market, leading to a massive outflow of funds.

MSCI Warning Triggers Continuous Plunge and Trading Halt

The report released by MSCI on Wednesday became the catalyst for the market explosion. The global major index provider stated that it found "fundamental investability issues" regarding the transparency of the equity structure of listed companies on the Indonesia Stock Exchange, expressing concerns about "opaque equity structures and potential collusive trading behavior." It requires more detailed and reliable information, including stronger monitoring measures, to better assess the free float and investability of securities.

The core issue lies in the excessively low free float of Indonesian stocks. The largest companies in the country are thinly traded and controlled by a few wealthy individuals—investors believe this structure distorts the index and poses manipulation risks. This issue has been a point of contention for years, with investors arguing that the low liquidity of certain stocks makes large parts of the market uninvestable and difficult to track.

The plunge on Wednesday exceeded 7% and triggered a 30-minute trading suspension. On Thursday, Goldman Sachs downgraded the rating of Indonesian stocks, stating that the threat of losing emerging market status "could trigger massive sell-offs." The bank warned that in extreme cases, it could trigger an outflow of over $13 billion. The index plummeted another 10% that day.

As of this week, the Jakarta Composite Index has fallen 6.5% since the beginning of the week, marking the most severe two-day decline since the 1998 Asian financial crisis

Regulatory Authorities Urgently Introduce Reform Measures

In response to the market crash, the Chairman of the Financial Services Authority of Indonesia announced on Thursday that the free float requirement for listed companies will be raised to 15%. This ratio doubles the current level, and the new regulation will take effect next month. The regulatory authority will also examine the relationships of shareholders holding less than 5%.

Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto stated at a press conference on Friday that the government is accelerating the deregulation reforms of the stock exchange this year, aiming to strengthen governance, enhance market liquidity, expand capital access, and attract new investors. This reform will align the Indonesian stock exchange with global peers that have transitioned to a shareholder ownership structure.

The government is also preparing measures to boost investor confidence, including raising the capital market allocation limit for insurance companies and possibly involving the sovereign wealth fund Danantara in the market. The regulatory authority indicated that communication with MSCI has been positive, and they are awaiting a response to these measures, hoping for prompt implementation.

Currently, MSCI does not have a minimum free float requirement for national market classification; classification depends on factors such as accessibility and economic development. However, the index provider does require securities to maintain a 15% free float for a period to be included in its investable emerging market category, although there are exceptions.

Structural Issues Raise Long-term Concerns for Investors

“As accountability for the events of the past two days, I hereby announce my resignation,” Rachman stated to reporters at a press conference on Friday:

“I hope this is beneficial for the capital market, and my resignation can improve our capital market.”

Rachman served as CEO for less than four years and had pushed for extended trading hours and the introduction of short-selling mechanisms to enhance liquidity, but with limited success. Exchange officials had previously attempted to incentivize market participants, but the fundamental structural issues of the Indonesian stock market remain unresolved.

This crisis has reignited doubts about the Indonesian financial market. This market has long been viewed as a beneficiary of the country's rapid economic growth, but growing concerns over public finances, the sudden departure of the finance minister, and the expanding fiscal deficit have prompted many investors to withdraw. From September to November 2025, global funds sold off Indonesian bonds, only returning to the market in December.

President Prabowo's economic policies have exacerbated uncertainty. In January, he appointed his nephew Thomas Djiwandono to the central bank and dismissed the respected finance minister Sri Mulyani Indrawati last year, actions that have shaken investor confidence in his management capabilities. Foreign capital has accelerated its outflow due to concerns over Prabowo's expansion of the fiscal deficit and increased state intervention in the financial market.

Data shows that foreign capital net sold $1 billion worth of Indonesian stocks throughout 2025. The Indonesian rupiah hit a historical low of 16,985 to 1 USD last week, rebounding to around 16,800 this week.

Investor Confidence Dented, Outlook Remains Uncertain

SGMC Capital Senior Partner Mohit Mirpuri stated:

"This should be seen as a reset, not a blame game. Periods of pressure often accelerate change, opening the door for new leadership with a clear mission to raise standards, improve market structure, and enhance investor confidence."

He believes that someone must be held accountable, and the bigger picture is the opportunity for a reset and for exchanges to become stronger with clearer standards and governance.

Allspring Global Investments portfolio manager Gary Tan stated:

"The outlined direction for reform is positive, but the execution and the appointment of a credible successor will be key to determining whether these concerns can be fully alleviated."

Paul Dmitriev, senior analyst and co-portfolio manager at Global X ETFs, said:

"Policymakers want to address this issue. The government has strong incentives to resolve these problems, as systemic capital outflows would be significant and could have a substantial impact on the market."

On Friday, HSBC became the latest bank to downgrade its rating on Indonesian stocks due to growth concerns. Goldman Sachs and UBS have also downgraded the market rating. Many investors are still watching to see if regulators can make sufficient efforts to meet the requirements of index providers.

Despite the stock market being hit hard, officials insist that the country's fundamentals remain intact, pointing to strong domestic demand and ongoing structural reforms as buffers against external shocks. President Prabowo is closely monitoring this process, highlighting its importance to Indonesia's economic agenda