Indonesian stocks tumble 41pc; Jakarta goes after tycoons allegedly behind ‘gorengan’ shares

Indonesia’s benchmark stock index has fallen roughly 41% this year. It also dropped 3.5% on Thursday as investors reacted to concerns about market transparency and possible action by MSCI, a major index compiler. The decline has sharply weakened confidence in Indonesian shares.

The government is worried because foreign investors may withdraw money if Indonesia’s market is downgraded. Hashim Djojohadikusumo warned that capital outflows could weaken the rupiah. A weaker currency would make Indonesia’s foreign loans more expensive in rupiah terms, increasing pressure on the economy.

The slump is also hurting ordinary investors. Hashim said 32.7 million Indonesians hold brokerage accounts and are unhappy because their stock values have fallen. Officials are responding with fines, warnings against coordinated trading, and efforts to improve transparency. They fear the damage could worsen without stronger market confidence.

“Gorengan” shares are stocks whose prices are pushed around through coordinated buying and selling. Hashim described the practice as “deep frying” stocks. The trading can detach a share price from the company’s actual business performance, or fundamentals. That makes the market less trustworthy.

The basic mechanism is simple. Traders coordinate purchases to create the appearance of strong demand. Other investors may follow, pushing the price higher. The same group can then sell shares, causing the price to fall. The rise may therefore reflect trading activity rather than improved earnings, assets, or prospects.

Hashim urged companies and market players to stop immediately, warning that the government would act firmly. The practice matters beyond individual shares because widespread manipulation can damage confidence in Indonesia’s entire exchange. That could encourage foreign investors to leave and deepen the current market decline.

The scale of the decline is severe: Indonesia’s benchmark stock index has tumbled roughly 41% this year. Thursday alone brought another 3.5% fall. The losses matter widely because Hashim said 32.7 million Indonesian citizens hold brokerage accounts and invest through the stock market.

The regulatory response has also involved substantial penalties. After MSCI issued its October 15 notice, Indonesia’s Financial Services Authority, or OJK, announced penalties against more than a dozen entities involved in market manipulation. OJK head Friderica Widyasari Dewi said sanctioned firms had paid IDR2.1 trillion in fines.

The article gives the fines’ value as RM512 million. However, OJK had not disclosed the identities of the sanctioned entities. The combination of falling prices, dissatisfied retail investors, and opaque enforcement details shows why officials are pressing for greater transparency and tighter market conduct.

MSCI is a US index compiler that helps shape how international investors classify and track stock markets. In the article, it warned that Indonesia could be downgraded to standalone status. The warning followed concerns about opaque shareholding structures and coordinated trading in the country’s market.

A downgrade can matter because international investors often use market classifications when deciding where to invest. If Indonesia is removed from a broader market category, funds that follow such benchmarks may reduce or withdraw their holdings. Other investors may also see the downgrade as a warning about transparency and trading conditions.

The article calls standalone status a severe sanction and says the warning hammered sentiment. Hashim urged Jakarta to “mitigate the MSCI issue,” while OJK announced manipulation penalties. The immediate concern is that a possible double downgrade could accelerate capital outflows, weaken the rupiah, and deepen the market’s losses.

If international investors pull money from Indonesian shares, demand for the rupiah could weaken as funds leave the country. Hashim warned that a possible double downgrade could push the currency to 22,000 per US dollar. Bank Indonesia’s governor, however, said currency movements also reflect global market sentiment and other factors.

A weaker rupiah raises the local-currency cost of repaying foreign loans. Hashim said Indonesia would have to pay more for those loans. That would place additional pressure on businesses, public finances, and the wider economy, especially while the stock market is already falling.

Hashim called the possible outcome a disaster and catastrophe for Indonesia’s economy and warned of an extraordinarily negative political impact. Bank Indonesia said it remains focused on currency stability to support real-sector expansion. The country’s next challenge is restoring market confidence before outflows and falling prices reinforce each other.

President Prabowo Subianto is the central political figure in the response. He tasked his brother, Hashim Djojohadikusumo, with helping ensure the situation did not spiral out of control. Hashim spoke as the president’s special envoy and Kadin advisory board chairman, pressing market participants to stop manipulating shares.

The Financial Services Authority, or OJK, is handling enforcement. After MSCI’s October 15 notice, it announced penalties against more than a dozen entities involved in market manipulation. OJK head Friderica Widyasari Dewi said the sanctioned firms had paid IDR2.1 trillion in fines, although their identities remained undisclosed.

Bank Indonesia is responsible for monetary and currency stability. Governor Destry Damayanti said currency movements reflect several forces, including global sentiment. She said the central bank remains focused on stability to support real-sector expansion. Together, the actors are addressing trading conduct, investor confidence, and currency risks.

A stock market allocates money well when investors can identify who controls companies and trust the prices they see. Transparent ownership reveals potential conflicts and concentrated control. Reliable trading rules reduce manipulation. Accurate prices then give investors a clearer basis for deciding which businesses deserve capital.

The article highlights the risk when these conditions fail. MSCI warned about opaque shareholding structures and coordinated trading in Indonesia. Traders can push prices higher through artificial demand, making a company appear more valuable than its fundamentals justify. Investors may then commit money for the wrong reasons and suffer losses when the activity stops.

That damage affects the whole market, not only manipulated shares. Falling confidence can discourage foreign investment and hurt retail investors. Indonesia’s response includes OJK penalties and Hashim’s demand to stop “deep frying” stocks. Better transparency and enforcement could help restore confidence and direct funds more productively.