Goldman Sachs downgrades Indonesian stock market to "underweight," warns that downgrade risk could trigger a sell-off

Glonghui, January 29｜Goldman Sachs analysts have downgraded the Indonesian stock market rating to "underweight" and warned that MSCI's concerns over the investability of the Indonesian market could lead to the country's market being downgraded to frontier market status, triggering an outflow of more than $13 billion. Goldman Sachs predicts that in the extreme case of Indonesia being reclassified from an emerging market, passive funds tracking the MSCI index may sell up to $7.8 billion in assets. If FTSE Russell reassesses its free float methodology and market status, it could further trigger an outflow of $5.6 billion. Goldman Sachs analysts stated: "We expect (in the future) more passive selling, and see this development as a potential pressure that will hinder market performance." In addition, given that active fund managers in the region are overweight on the Indonesian market, the potential pressure from a possible downgrade, combined with rising market pressure and potentially reduced liquidity, is likely to prompt pure long investors to adjust their portfolios. This could also trigger speculative capital flows from hedge funds.