A network of brokers and wealthy investors allegedly used coordinated trades to inflate share prices and trading volumes in Indonesia, generating billions of dollars in paper wealth. The practices have drawn scrutiny from regulators and prompted MSCI to warn that the country could face a two-level downgrade in its emerging-market classification.
The so-called “MSCI trade” relied on a strategy designed to push selected companies into MSCI’s influential global indexes. By artificially boosting share prices and trading activity, brokers and major shareholders sought to meet the criteria for index inclusion, potentially attracting billions in foreign institutional investment.
One of the most striking examples involved PT Abadi Lestari Indonesia, a relatively obscure producer of Asian delicacies. Its shares surged by around 5,000%, prompting a research report from brokerage Samuel Sekuritas that projected a potential increase of almost 50,000%.
However, according to people familiar with the transactions cited by Bloomberg, Samuel Sekuritas traders had been working with the company to inflate its share price and trading volume. The brokerage allegedly used nominee accounts and existing client portfolios to generate artificial buy and sell orders. Exchange data showed that it accounted for more than half of the trading in Abadi shares during the period.
The company’s founder, 35-year-old Edwin Pranata, saw the value of his controlled stake rise to approximately $1.3 billion at the stock’s peak.
MSCI warns of market manipulation
The scale of the activity became a major concern for MSCI, which in January flagged what it described as “fundamental investability issues” in Indonesia’s equity market. The index provider specifically raised concerns about coordinated trading that could distort share prices.
In October, MSCI reiterated its concerns, warning that insufficient progress on reforms could result in Indonesia being downgraded by two levels, potentially moving it out of the emerging-market category. A decision is expected by the end of June.
The warning has had a significant impact on the market. Abadi shares have fallen around 70%, while Indonesia’s benchmark stock index has lost approximately 40%. Regulators have accelerated efforts to tighten oversight and improve market transparency.
Samuel Sekuritas owner Eunice Satyono denied allegations that her firm had coordinated trades, used nominee accounts or published misleading research. She also rejected claims that the brokerage had engaged in illegal activity.
However, Indonesia’s Financial Services Authority (OJK) announced a 5 billion rupiah ($276,000) fine against Satyono for market manipulation in a separate case dating back to 2023. The regulator said the violations had created a false or misleading impression of trading activity and securities prices. Samuel Sekuritas was not named in that case.
Tycoon-controlled companies also under scrutiny
The investigation has also focused on companies linked to some of Indonesia’s wealthiest business figures, including billionaire Prajogo Pangestu and the Sinar Mas Group.
Barito Renewables Energy, part of Pangestu’s business empire, saw its shares climb almost 1,000% within weeks of its 2023 initial public offering. According to people familiar with the matter, brokers at Henan Putihrai Sekuritas helped fuel trading activity and speculation that the company would enter MSCI indexes. Henan denied any illegal conduct.
A key factor was the limited number of shares available to public investors. Exchange officials later determined that Pangestu and a small group of investors controlled 97% of Barito Renewables’ shares, restricting supply and making it more expensive for investors seeking exposure ahead of its index inclusion.
OJK subsequently imposed combined fines of 2.1 trillion rupiah ($116 million) on companies and individuals linked to Barito Renewables, PT Petrindo Jaya Kreasi and PT Dian Swastatika Sentosa. The regulator cited market manipulation and misleading transactions, while also identifying breaches of anti-money-laundering rules involving a brokerage linked to Pangestu.
Dian Swastatika’s inclusion in MSCI indexes had also triggered a sharp rally, with its shares repeatedly hitting the exchange’s daily price limits. Foreign investors reportedly complained that the surge made it difficult to acquire enough shares to match the company’s new index weighting.
Regulators face pressure to restore investor confidence
Indonesia has introduced several measures in response to the controversy. The stock exchange doubled the minimum public shareholding requirement in March and disclosed companies whose shares were concentrated among a small number of investors. MSCI subsequently removed nine Indonesian companies from its indexes after finding that they did not meet its trading requirements.
The fallout has also hit retail investors. Fardli Yansah, a 25-year-old investor who had bought shares based on expectations of MSCI inclusion, said he lost around 80% of his investment, equivalent to approximately $17,000, after the rally collapsed.
The turmoil has contributed to a broader loss of confidence in Indonesian assets. The country’s stock market has recorded the world’s steepest decline this year, while the rupiah has weakened more than any other Asian currency.
President Prabowo Subianto has criticised what he described as pressure from international institutions, saying Indonesia would not be intimidated by MSCI. The index provider, meanwhile, says significant concerns about market dysfunction remain and that reforms must be implemented consistently.
For international investors, the challenge now extends beyond share prices. As Singapore-based fund manager Ricky Ho told Bloomberg, trading volumes can be artificially generated, but institutional trust is much harder to rebuild.
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