Indonesia's benchmark stock index fell 16.7% in October, its steepest monthly loss since March 2020, as a threat by index provider MSCI to demote the market pushed foreign investors out and kept the rupiah close to record lows.

The Jakarta Composite Index closed Friday at 5,057.05, down 41.01 points, or 0.8%, on the day, Antara and CNBC Indonesia reported. The Financial Services Authority (OJK) put the September close at 6,071.14. The index lost 7% this week and about 41.5% this year, based on Yahoo Finance data.

The selloff matters well beyond Jakarta. After MSCI proposed moving Indonesia from its emerging-market category to “standalone” status, the index plunged 11.57% on Oct. 16. If adopted, the change would apply to MSCI's Indonesia index and the regional and global benchmarks that include it, Kontan reported.

How the Jakarta Composite's October Compares With 2008

In a report published before Friday's close, Reuters said Indonesian stocks were set for their worst month in nearly two decades, with the index down 18% this month. That matched the session low: the benchmark touched 4,979 before recovering, said Ratna Lim, head of research at Phintraco Sekuritas, according to Antara. CNBC Indonesia put the low at about 9:40 a.m.

That recovery changed the comparison. On the final close, October's 16.70% fall was slightly smaller than the 16.76% drop in March 2020, according to Capital Times calculations from Yahoo Finance data, making it the second-worst month since October 2008, when the index lost 31.4% during the global financial crisis.

Large companies linked to tycoon Prajogo Pangestu were among Friday's biggest decliners, Katadata reported. Barito Renewables Energy fell 6.99% to 1,795 rupiah and Barito Pacific 6.96% to 1,070 rupiah. Over the month, Barito Renewables lost 38%, Dian Swastatika Sentosa 37% and Chandra Asri Pacific 26%, according to Capital Times calculations from Yahoo Finance prices. Petrindo Jaya Kreasi more than halved.

Foreign selling has centered on the big banks. Bank Central Asia fell 18% in October and Bank Rakyat Indonesia about 11%. Astra International was a rare gainer, up about 4%.

MSCI, the Rupiah and Foreign Selling Weigh on Indonesian Stocks

Analysts cited a mix of local and global pressures. Handiman, managing director at Solstice Indonesia, told CNBC Indonesia that the MSCI review was among the domestic pressures on foreign investors. He also pointed to a rupiah that touched 18,185 per dollar and to government bond yields near 7.6%, which make shares less competitive with bonds.

Abroad, he cited a split Federal Reserve decision, U.S. Treasury yields that reached 5.042% and Brent crude above $110 a barrel after Houthi attacks on Saudi oil refineries. Crude eased on Friday on hopes for Middle East peace talks, Reuters reported in a separate story on Japanese stocks.

Reuters said the rout prompted Jakarta to announce new support measures, but analysts warned that volatility could last until there is more clarity on Indonesia's index status and the direction of fiscal policy. Bond yields were near six-year highs, the agency said.

Foreign money has kept leaving. Overseas investors were net sellers of 3.35 trillion rupiah of shares on Oct. 16 alone, with Bank Central Asia accounting for 2.3 trillion rupiah, Kontan reported. Citing exchange data, a separate Kontan report put net foreign selling from January through Oct. 16 at 88.19 trillion rupiah. On Thursday, foreigners sold a net of about 1.52 trillion rupiah in the regular market, CNBC Indonesia reported.

The OJK said at its monthly board briefing on Oct. 5 that foreign investors sold a net 10.24 trillion rupiah of Indonesian stocks in September, after net buying of 1.19 trillion rupiah in August.

Hashim Djojohadikusumo, chairman of the advisory board of the Indonesian Chamber of Commerce and Industry (Kadin), told a Kadin meeting on Thursday that capital flight could weaken the rupiah further if the MSCI issue is not resolved, and said the currency must not be allowed to slide to 21,000 or 22,000 per dollar, Antara reported. He said the president had asked him to help limit the risks from the MSCI review.

Korea's Kospi Falls Nearly as Far in a Rough Month for Asia

Indonesia was not alone. South Korea's Kospi fell 16.2% in October, nearly matching Jakarta, according to Capital Times calculations from Yahoo Finance data. On Friday it dropped 3.5% and Taiwan's benchmark fell 2.5% as investors rotated out of AI-linked trades after disappointing results from large technology companies, Reuters reported.

For the month, Taiwan's index fell 5.7%, Japan's Nikkei 225 lost 5.2% and Hong Kong's Hang Seng Index slipped 5.4%, on the same basis. China's CSI300 was down 7.6% for the month at Friday's lunch break, Reuters reported.

In Jakarta, the exchange will exclude stocks with highly concentrated shareholdings from the index calculation from Nov. 2, a change that analysts quoted by CNBC Indonesia said could prompt large-scale rebalancing by fund managers. The exchange also dropped five stocks, including Bank Central Asia and Astra International, from its list of shares eligible for short selling in November, CNBC Indonesia reported.

Investors will get third-quarter GDP, inflation, trade and foreign-reserve data next week, Antara reported. Bank Indonesia said its November rate decision will depend on domestic and global conditions and will not automatically follow the Fed, and Governor Destry Damayanti said the central bank has several tools to respond to rupiah weakness, according to CNBC Indonesia. Phintraco expects the index to test the 4,900 to 5,000 range.

MSCI's consultation on Indonesia runs until April 30, 2027, with a final decision due by June 30, 2027, Kontan reported.