Indonesia ETFs Leading the Pack in 2013 - ETF News And Commentary
March 27 2013 - 7:20AM
Zacks
By and large, Indonesia ETFs were a huge disappointment in 2012.
These once high flying ETFs struggled compared to their peers on
the year, finishing flat or in the red while broad emerging market
ETFs—and especially those in Southeast Asia—soared higher in the
time frame.
In fact, country ETFs that follow markets like Thailand
(THD), Singapore (EWS), or the
Philippines (EPHE) jumped higher on the year by
more than 20% each, putting products targeting Indonesia to shame.
However, there has been somewhat of a reversal to start 2013 as
Indonesia ETFs have stormed higher to begin the new year (see Can
Indonesia ETFs Rebound in 2013?).
Indonesia ETFs in Focus
Currently, there are three choices for investors seeking to make
a play on Indonesian securities. Two are in the large cap
space—the Market Vectors Indonesia ETF (IDX) and
the iShares MSCI Indonesia Investable Market Index Fund
(EIDO)—and a small cap option as well, the Market
Vectors Indonesia Small Cap ETF (IDXJ).
All three have bolted to a great start in 2013, with all up
double digits already on the year. Furthermore, the unloved small
cap product IDXJ, has actually added nearly 30% in the time frame,
crushing pretty much every other segment in the world during
Q1.
What Gives?
This incredible reversal is due to a few important reasons.
First, the country’s currency, the rupiah, has largely stabilized
against the dollar during the last few months. This is a sharp
change from late 2012 in which the greenback strengthened heavily
against the Indonesian currency.
This is very important for U.S. investors as it helps to promote
strong returns when investors repatriate assets back into dollars.
After all, most Indonesian securities in the products highlighted
above are in rupiahs, so a weakened currency hurts the
dollar-denominated return (see 4 Best ETF Strategies for 2013).
Beyond that, investors have looked to cheaper emerging markets
this year, and especially ones that haven’t been as bid up in the
euphoria of late 2012. Indonesian stocks are prime examples of
this, so many have piqued investor interest to start the year.
Lastly, there has also been some positive news on the policy
front, and particularly with regards to the country’s inflation
fighting capabilities. A new central bank governor was recently
appointed and he has vowed to keep inflation low, declaring that it
the bank would ‘guard the rupiah stability in line with its
fundamentals’.
This pledge is viewed as a positive by many, as the rupiah was
the worst performing currency out of Asia’s 10 most-traded (besides
the yen) last year, so some stability could go along way to
returning confidence. This could be especially true if inflation
can be kept in check while still maintaining a solid rate of growth
(read Emerging Market ETFs to Soar in 2013?).
Indonesia ETFs in Focus
For the reasons outlined above, investing in Indonesian ETFs is
looking quite promising this year. The country remains very much
consumer driven, and recent policy shifts look to aid in a robust
recovery on this front.
While it is true that there is some concern over lending rates,
foreign currency reserves, and fuel subsidies, the future is still
undeniably bright for the surging emerging market. The country
still has incredible growth potential, and unlike many of its
neighbors, is still a reasonable value at this time (see Emerging
Market Dividend ETFs).
Thanks to this, we currently have a bullish outlook on the top
Indonesian ETFs, including a Zacks ETF Rank of 1 or ‘Strong Buy’ on
IDX, and a Rank of 2 or ‘Buy’ for EIDO. Add in IDXJ’s incredible
performance (but high levels of volatility) and it appears as
though investors can’t really go wrong in this corner of the fund
world, suggesting now is a great time to give Indonesian ETFs a
closer look.
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ISHARS-MS INDON (EIDO): ETF Research Reports
MKT VEC-INDONES (IDX): ETF Research Reports
MKT VEC-INDO SC (IDXJ): ETF Research Reports
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