KUALA LUMPUR: Permodalan Nasional Bhd (PNB) has ruled out a blanket withdrawal from Indonesian investments following MSCI’s proposal to reclassify the country’s equity market, saying the index provider’s concerns do not, by themselves, justify an exit.
PNB said it has no direct holdings in Indonesian equities. Its direct exposure to the country is limited to fixed-income investments that account for a very small proportion of its total assets under management.
MSCI’s latest move, announced on Oct 15, proposes reclassifying Indonesia from an emerging market to a standalone market, citing persistent concerns over opaque shareholding structures, suspected coordinated trading and weaknesses in market governance.
This triggered a sharp sell-off in the market. Indonesia’s benchmark Jakarta Composite Index saw the largest single-day drop on Oct 16 since January 1998 after about US$65 billion was wiped off the value of Indonesian stocks.
MSCI also said market participants had yet to see sufficient evidence that reforms announced by Indonesian authorities had materially improved market transparency and functioning.
The proposal marks an escalation of concerns first raised in January, when MSCI froze certain index-related changes involving Indonesian securities while awaiting improvements in free-float data and shareholder disclosures.
Indonesia has since introduced measures including disclosure of shareholders with stakes above one per cent, a framework to monitor high shareholding concentration and a roadmap to raise minimum free float to 15 per cent.
MSCI is consulting market participants until April 30, 2027, and is expected to announce its final decision by June 30. It has also maintained the freeze on certain index changes in the meantime.
PNB said the downgrade by the global index provider is one of the many factors the fund looks at before investing with other reasons also coming into play.
“The proposed reclassification by MSCI is one of many factors PNB considers alongside economic fundamentals, valuation, liquidity, governance standards, regulatory developments, and long-term prospects of the country,” PNB said in a response to Business Times’ queries.
PNB said uncertainties over market accessibility, governance, foreign investor participation, currency stability and policy direction would need to be weighed against company-specific fundamentals.
On its investment in Malayan Banking Bhd (Maybank), which has exposure to Indonesia through PT Maybank Indonesia Tbk, PNB said it remained confident in the group’s management and board to strengthen operational performance, manage risks and enhance shareholder value.
PNB described its Maybank investment as a long-term strategic holding and said it would engage constructively with the group through established governance channels, while respecting the board and management’s authority over its subsidiaries.