Indonesia Remains World’s Worst as China Hits Bear Territory
Almost all Asian markets are in the red, with many of the year’s top performers the major laggards.
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It’s a brutal day for Asian markets on Thursday, with heavy selling across the region. Tech selling started the process but the downward move has broadened out to hit most markets.
We’ve come to expect large daily moves in South Korea and, to a lesser extent, Taiwan. That’s given the concentration in chipmaking companies on those exchanges, which are dominated by a handful of trillion-dollar heavyweights.
But Thursday’s 3.5% decline in South Korea’s benchmark Kospi index is not at all unusual. SK Hynix (KR:000660) (SKHY) lurched 11.1% lower in Seoul. Taiwan ended the day down 1.8%, with heavyweight TSMC off 1.5% in Taipei, and now down 4.8% in early New York going.
China Stocks Enter Bear Territory
The Hang Seng, Hong Kong’s benchmark, posted a 3.0% fall, while mainland China’s markets also declined, in the form of a 1.8% drop in the CSI 300 index, tracking stocks in Shanghai and Shenzhen.
That means Chinese stocks have now officially entered a bear market, down 20.2% from their June highs. They’re posting a year-to-date loss of 12.8%, with no signs of significant stimulus to prop up the market. Hong Kong stocks are down 11.8% since an August peak, and off 10.5% for the year so far.
While China released figures on Monday showing economic growth of 4.5% for Q3, it is exports that are powering ahead. Consumption is lackluster and consumer confidence remains low, with many households nursing wounds to their household wealth from a five-year fall in property prices.
Tokyo Down Hard But Still Well Up for Year
In Japan, the blue-chip Nikkei 225 fell 2.7%, while the broad-market Topix shed 1.1%. The Tokyo market is at least sitting on healthy gains for the year, the Nikkei is the standout with a 25.0% rise so far in 2026.
Many of this year’s top performers are down the hardest. For Thursday, artificial intelligence investor SoftBank Group (SFTBY) (T:9984) sold down 6.9%, while chip-production equipment maker Tokyo Electron (TELWY) (T:8035) fell 7.0%.
Chipmaker Kioxia Holdings (T:285A), which had been this year’s top performer in Tokyo, is down 6.8%. It is now off a whopping 65.2% from its June high, even if it is still up almost fourfold this year.
Stocks also moved lower in Australia, New Zealand, Singapore and India. Only in Malaysia, Thailand and Indonesia did we see gains.
Indonesia Contends With Removal of ‘Emerging’ Status
Indonesia is an outlier worth discussing. The IDX Composite Index (still often known by its old name as the Jakarta Composite) added 1.1% on Thursday after the stock exchange declared that it will exclude companies with very high shareholding concentrations from the benchmark as of November 2.
But the Jakarta market has tanked 9.3% in the last week, and is the world’s worst-performing stock market in 2026, down 37.7% year to date.
Indonesian regulators are scrambling to avoid being recategorized by index provider MSCI, which no longer believes it is “appropriate” to call Indonesia an emerging market.
Kicked Out of Emerging Markets?
MSCI on October 15 said it was starting the consultation process to remove MSCI from emerging-markets indexes and put it into separate “standalone-market status.”
Such a move would be devastating, forcing fund managers and institutions with products based on emerging-markets benchmarks to sell Indonesian equities. The Jakarta market fell 11.6% on October 16, its worst day of trade since the Asian financial crisis in 1998.
The scrutiny started in January, when MSCI delivered what I called a “haymaker to the chin” by threatening to reclassify Indonesia. The Jakarta market also plunged 16.5% across two days.
MSCI, due for a regular annual review of Indonesia’s status, surprised markets by stating it is considering moving it from “emerging” to “frontier” status.
What Is Worrying MSCI?
The index provider is concerned about a lack of transparency in the Jakarta market, heavy insider ownership, low levels of public float and apparently coordinated trading activity that manipulates stocks.
Those issues plague smaller markets across Asia, including the Philippines, Thailand, even Hong Kong. But MSCI feels the insider ownership and what looks like stock manipulation are particularly egregious in Jakarta. A handful of extremely wealthy families control Indonesia’s economy, with the 50 richest families worth a combined $306 billion. They operate as a closed shop, making it very hard for entrepreneurs to break into top business circles.
The Indonesian stock-exchange operator, regulator and clearing house have tried to implement changes that would rectify MSCI’s concerns. The index provider does credit the attempts to enhance the disclosure of insider stakes, improve insider classification, and introduce a roadmap toward a free-float requirement of 15% of shares. But MSCI says the changes don’t go far enough, or lack the necessary commitment from regulators to ensure they truly take effect.
“Market participants have indicated to MSCI that, to date, sufficient progress has not been observed consistently across the Indonesian equity market,” MSCI stated. “Despite the announced reforms, significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and a lack of evidence of meaningful enforcement.”
Changes Don’t Go Far Enough
In other words: these may be changes that look good on paper, but do little in practice if there’s no commitment from regulators to make sure they have an effect. And there will be intense political pressure from those wealthy families on any overly keen regulators who decide to take on the establishment.
Still, removing insider-controlled companies from indexes is a start. The troubled market has at least moved off Monday’s six-year low, up 8.7% since then — but still looking at a loss of close to 40% of the market’s total valuation this year.
There are 80 stocks on the high-concentration list, which Reuters calculates account for 18% of the country’s total market capitalization. The Indonesia Stock Exchange issued a statement on Thursday that those companies will be excluded from the main IDX Composite Index.
Defiance From President
MSCI has also referred to potential political interference into Indonesian markets. President Prabowo Subianto told his cabinet during a YouTube-streamed meeting yesterday that MSCI is trying to “intimidate” Indonesia.
“I simply say to the MSCI: the Indonesian nation fears no one, and will not be cowed,” he said. “We possess strength, we have courage, we are willing to make sacrifices, and we refuse to surrender.”
Prabowo, a political insider and former commander of Indonesia’s feared special-forces, has frequently proposed that foreign powers are attempting to destabilize Indonesia. He has already indicated that he values his allies and even family members over competent independent officials. He has already replaced a well-regarded finance minister and pressured a veteran central-bank chief to resign, installing his nephew as deputy central-bank governor.
Quite honestly, we are likely to continue to see interference from the Prabowo administration into regulation and enforcement. It looks as though MSCI’s reclassification may go ahead unless there’s significant change as a result of its pressure.
