(Nov 11): Indonesia’s bourse more than quadrupled the number of stocks found with high shareholder concentration, as it sought to resolve MSCI Inc’s complaints about illiquidity and opaque ownership.

The Indonesia Stock Exchange said 300 more stocks have been identified, adding to the 83 on a list to be excluded from gauges. The latest group made up about 6% of the benchmark index’s market capitalisation, it said without naming them or when they will be removed from the gauge. 

While the move represents the Southeast Asian country’s accelerated response to MSCI’s warning last month that it faces a two-step downgrade from emerging markets status, analysts said it still falls short of addressing the fundamental issues plaguing local equities. While authorities have tightened rules after MSCI’s complaint first emerged in January, the index compiler said they weren’t sufficient, laying out the need for enforcement actions.

“We see this directionally positive as IDX now detects concentration at source rather than reacting to prices,” said Wilbert Arifin, analyst at PT Mirae Asset Sekuritas Indonesia, but adding that the move “does little for the case”. “What matters is the list shrinking through actual sell downs and more enforcement regarding coordinated trading behaviour,” he said. 

The announcement, made by Indonesia Stock Exchange chief executive Jeffrey Hendrik late Tuesday, is the latest step by regulators to stave off a double downgrade by MSCI. Authorities have also imposed fines on manipulative market practices and pledged strong enforcement. 

The exchange will remove the market-cap prerequisite for inclusion on the list, previously set at five trillion rupiah (US$277 million or RM1.1 billion), and introduce new qualifying criteria. These include stocks where 10 or fewer holders own at least 92.5% of shares. The bourse will also drop the so-called price impact ratio, which measures the magnitude of a share move relative to its trading activity, as a determining factor.

Firms that are on the list will be removed from both the MSCI and JCI indices. To exit the list, firms and shareholders have to sell stock to the public via transactions in the regular market. 

The clutch of companies previously identified for closely-held shares include tycoon-linked PT Barito Renewables Energy and PT Dian Swastatika Sentosa. 

MSCI said it welcomes feedback from market participants on the reclassification proposal until April 30 and will announce its decision on or before June 30. 

The move comes as Indonesian stocks have suffered months-long foreign outflows, with the benchmark gauge tumbling more than 40% this year to become the world’s worst performer. The Jakarta Composite Index fell 0.2% on Wednesday morning. 

In a note after the announcement, Citigroup Inc analysts including Ferry Wong said that recent actions by authorities are decent, “but more efforts are likely needed to avoid downgrade”. 

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