Indonesia’s benchmark stock index plunged over 5% on Monday to its lowest level in six years, as concerns over a potential downgrade by MSCI intensified fears of further foreign investor outflows.

The Jakarta Composite Index tumbled to its lowest level since early October 2020, extending a bruising sell-off in Indonesian equities. MSCI, the index provider, on Friday proposed reclassifying Indonesia directly from an emerging market to stand-alone status, raising the prospect of the country’s removal from major global equity benchmarks.

MSCI is expected to make a final decision by June, with the potential reclassification hinging on whether Indonesian authorities can demonstrate meaningful improvements in market governance and…