WTF Just Happened to Indonesia? (Worst Crash Since 1998)

Summary

Market selloff and MSCI

• Indonesia’s stock market fell 11.6% in one session, its worst day since 1998. The video estimates that roughly $270 billion in market value had been lost since January. It also says the market was down about 42% after Friday’s fall.
• MSCI froze the addition of Indonesian stocks in January over concerns about ownership transparency and the small public float of some shares. The video says the index fell 8% in two days after the freeze, and the stock-exchange chief and market-regulator head resigned.
• Indonesia raised the minimum public shareholding requirement for listed companies to 15%, double the previous rule. MSCI nevertheless proposed moving Indonesia to “standalone” status, which could reduce the need for benchmarked funds to hold Indonesian stocks.
• UBS estimates the change could prompt about $4 billion in passive outflows and as much as $15 billion more from active funds benchmarked against MSCI.
• TSCS’s historical review found that 17 of 24 MSCI or FTSE market-demotion threats it examined ended in demotions. It says MSCI may make its final decision by June 30 next year, with forced selling potentially arriving around November 2027.

The video’s explanation of the decline

• MSCI was a catalyst, not the underlying cause, in TSCS’s view. Indonesia’s three largest banks had already lost more than a quarter of their value while the broader index had risen 19% over the same stretch.
• Mandiri (BMRI) reportedly began falling in October 2024, when President Prabowo took office, and was down 29% before MSCI’s freeze. BCA (BBCA), described as the country’s best-run bank, fell from about 25× earnings to 17× and then to about 10×.
• The rupiah is another source of pressure: the video says it was down about 7% against the US dollar this year, versus an 85% fall in 1998. Bank Indonesia had reportedly spent around $10 billion of reserves supporting the currency and offered foreign investors nearly 7% interest to keep money in the country.
• TSCS argues that investors who cannot easily sell the rupiah may sell rupiah-earning companies instead. Over two years, it cites declines of 51% for BCA, 52% for Mandiri, 61% for Kalbe Farma (KLBF) and 68% for Alfamart (AMRT). Dollar-earning tin miner Timah (TINS), by contrast, rose 158%.
• The video says Indonesia’s short-term foreign obligations relative to reserves are about 0.5, compared with 1.82 in countries that experienced crises in 1997. It therefore argues that the current situation does not yet resemble 1998, while warning that reserve losses remain a risk.

State policy, banks and financial risks

• The government launched Danantara, a sovereign wealth fund, in February 2025 to hold state shares in major banks. The video links its launch to declines in state-owned bank shares: Mandiri fell 9% and BRI (BBRI) fell 14% that week, while privately owned BCA fell 6%.
• The video describes policies that direct export dollars through state banks:
  • Exporters with proceeds above $250,000 must deposit them at a state bank and can convert only half into rupiah.
  • A group of 64 mining exporters receives more favorable treatment, depositing 30% for only three months.
  • From January, coal, palm-oil and ferroalloy exports are to be routed through a state company that can take a “reasonable” cut.
• TSCS’s central concern is that the state is drawing cash from the banks while also directing their lending:
  • Mandiri reportedly raised its payout ratio to about 79% after Danantara arrived; its most recent dividend yields about 14% at the video’s stated price. BRI yields roughly 13.5%, versus 7% for BCA.
  • Danantara reportedly received 116 trillion rupiah in dividends and had 210 trillion rupiah in credit lines from the banks.
  • BRI’s small loans grew 6% in the first half of the year, while loans to large companies rose 47%. The video says BRI pays out about 92% of earnings, leaving its capital cushion growing only around 1.5% a year, while loans grow 16%.
  • Mandiri’s core capital relative to loans reportedly fell from nearly 21% to below 17% by June; total capital was said to be only about three percentage points above the legal minimum.
• TSCS says the state wants growth near 8%, free school meals and 3 million new homes, while tax collection had fallen below 14% of the economy by 2019. It argues that state-bank funding is cheaper and more accessible to the government than foreign equity capital, which comes with demands for market transparency and enforcement.
• The video estimates Danantara had put only about $500 million into Indonesian stocks, while placing $250 million into one US oil producer—reportedly half of what it invested in its own market.

Investment view and framework

• TSCS says it considered three scenarios: reform, muddling through or a worsening squeeze. In its view, current prices largely reflect the middle scenario, so an investment must be cheap on its own and remain viable even if foreign investors do not return.
• BCA: TSCS considers it the strongest bank but thinks the price already assumes reform; it views the stock as fairly priced and says it would probably avoid it.
• Mandiri: TSCS says it trades below 6× earnings and yields about 14%. It argues that the state’s need for dividend cash could help support the payout: the stated dividend is 477 rupiah per share, and even a return to an older payout level of around 60% of profit would imply roughly an 11% yield.
• TSCS says it ran 20,000 simulations. Buying now and waiting for possible forced selling came out roughly even in the model, but buying earlier provides dividends while waiting. Its stated approach is to buy in stages:
  • Some at current levels.
  • More if Mandiri falls to 2,900 rupiah.
  • More at 2,500 rupiah.
  • The remainder around the potential forced-selling period in November 2027.
• The video’s five stated reasons to sell or reconsider Mandiri are:
  1. Rising bad loans in the March results.
  2. Management signaling a dividend cut.
  3. A rights issue.
  4. Capital falling within two percentage points of the legal minimum.
  5. A rule that allows banks to stop classifying bad loans as bad.
• A further warning concerns central-bank independence and the currency reserve position. The video says reserves declined from about $156 billion at year-end to $146 billion in September; if they fall to $130 billion while the rupiah is still being defended, TSCS’s view that the situation is unlike 1998 would be weakened.
• Other comparisons cited: Taiwan’s market was up 62% and Korea’s 37% for the year, while Indonesia was down 42% after Friday’s fall.
• TSCS says investors should watch the banks’ March full-year results and August half-year results.

Assets and instruments mentioned

• Equities and banks: Mandiri (BMRI), BRI (BBRI), BCA (BBCA).
• Other listed companies: Kalbe Farma (KLBF), Alfamart (AMRT), Timah (TINS); Freeport and Vale are named among mining exporters.
• Markets and index providers: Indonesia’s stock market, MSCI and FTSE; Taiwan and Korea markets.
• Currency and reserves: Indonesian rupiah (IDR), US dollar, Bank Indonesia foreign-exchange reserves.
• Sectors and commodities: Banking, tin, nickel and nickel smelting, coal, palm oil, ferroalloys, oil.
• Other instruments and vehicles: Sovereign wealth fund Danantara, passive index funds, active benchmarked funds, dividends, bank credit lines and rights issues.

Disclosure: The video’s metadata says it is for education and not financial advice; it advises viewers to do their own research.

Presenters and sources: No individual presenter is identified in the subtitles; the analysis is by TSCS. The video refers to MSCI, UBS and fund manager Lyall Taylor. Listed data sources include Yahoo Finance, MSCI, IMF, World Bank, Bank Indonesia, OJK, company filings and TSCS calculations.