Market Rout: Indonesia trading halted for second day in a row, Goldman warns of $13 billion risk

Trading was halted for 30 minutes on the Jakarta Composite Index in Indonesia for the second day in a row on Thursday, January 29, after the country's benchmark index fell another 10%, extending losses from Wednesday. The next halt will come on the 15% circuit breaker.

The Indonesian Rupiah has also declined 0.5% intraday, marking the biggest single-day fall for the currency since October last year.

Wednesday's fall turned out to be the biggest since April last year, after index service provider MSCI warned of the investability potential of the country's stocks. MSCI also said that till the issues are addressed, it will stop index changes, including addition of new stocks.

This is now the worst two-day drop for the Jakarta Composite since 1998. MSCI has warned that it could downgrade the country to a "frontier-market" status.

Issues in Indonesia center around concerns surrounding over low free float for most of the listed companies. Investors have complained for long that most of the stocks, including the big names, are thinly traded and controlled by a handful of wealthy individuals, increasing the risk of manipulation.

Even before Wednesday's rout, foreign investors had sold $192 million worth of Indonesian stocks for the week that ended on January 23, marking the first outflow in 16 weeks.

Both Goldman Sachs and UBS have downgraded their respective ratings on Indonesian stocks. Goldman has warned of a $13 billion potential outflow risk in an extreme scenario.

“We think overhang on the overall market will likely persist until we get clarity on regulations and MSCI’s reassessment,” UBS analysts including Sunil Tirumalai wrote in a note.

(With Inputs From Agencies)