The Indonesian economy, the biggest in Southeast Asia, appears
to be poised for good growth in 2013. This is largely
attributable to healthy domestic consumption, a favorable
investment climate and increased infrastructure development.
Low inflation and interest rates should also support economic
growth, helping the country to surge higher in the years ahead.
This, along with strong domestic consumption, has enabled the
economy to maintain a mid-single digit GDP growth rate for the
past eight years, suggesting impressive resilience for the
Indonesian economy (
Can Indonesia ETFs Rebound in 2013?
In fact, the Indonesian economy has held up quite well against
the global economic downturn. Firm domestic demand may be cited
as the reason for the strong performance of the economy, as this
was at a time when developed parts of the world were in the
doldrums and providing little in terms of growth.
Moreover, its strong resiliency has encouraged foreign
investment in the region. The country has experienced huge amount
of foreign investment in recent years.
However, in the recent past couple of days, the nation's
currency, the rupiah, has shown some weakness attributable
to the country's first annual trade deficit noticed in 2012.
Furthermore, with markets in the U.S. and China showing signs of
recovery, the economy is again expected to witness a pickup in
export demand which will eventually result in current account
Also, a growing middle class is one of the factors which has
contributed to the economic growth of Indonesian economy. In
fact, the middle class in Indonesia is expected to double by
2020, leading to a huge consumer market in the nation (
Indonesia ETFs Leading the Pack in 2013
Cons of the economy
Although domestic investment growth will remain a key to
Indonesia's economy; however, the growth may moderate in 2013.
Slower pace of imported capital goods spending is reflective of
restrained growth in domestic investment.
Capital imports recorded a fall of 12.1% in January 2013. The
softness in capital import growth is mainly due to weak commodity
prices which resulted in a drop in investment in mining and oil
Also rising inflation remains a matter of concern for the
nation. The economy reported a 20-month high inflation level of
5.3% in February while the World Bank predicts an inflation level
of 5.5% for the economy in 2013 (
The Key to International ETF Investing
The World Bank has also estimated a fiscal deficit of 1.9
percent of Indonesia's GDP in 2013 due to higher projected fuel
subsidy spending and potentially weaker revenue collection.
Poor infrastructure is yet another factor which may hamper the
economy's growth. Improving the level, quality and efficiency of
infrastructure investment can help to unlock the economic
benefits of urban agglomerations and support the quality of
Due in part to these issues, Indonesia ETFs were
underperformers in 2012. While most of Southeast Asia's ETFs
recorded a strong performance last year, Indonesian ETFs ended up
in the red or flat.
However, 2013 has proven to be a gamechanger for these
Indonesian ETFs. Performance of Indonesian ETFs excelled in
comparison to other Southeast Asia ETFs since the start of 2013,
allowing the funds to shed their losses from 2012.
Currently, there are three choices for investors seeking to
make a play on Indonesian securities.
The Market Vectors Indonesia ETF (
the iShares MSCI Indonesia Investable Market Index Fund (
Market Vectors Indonesia Small-Cap ETF
All three had a great start in 2013, posting solid growth
in the year-to date period, and erasing the poor memories from
2012. Below, we highlight some of the key differences between the
three for investors seeking exposure to this still impressive
Market Vectors Indonesia Small-Cap ETF (
Among the top performers, Indonesian ETFs put up a remarkable
show in the first quarter. IDXJ recorded an impressive
year-to-date gain of 26.07%. After a dismal performance in 2012,
the recovery in the New Year has been striking (
Top Performing ETFs of the First Quarter
As the name suggests, the recently launched IDXJ offers a
targeted exposure to the small-cap segment of the Indonesian
market thereby providing a better opportunity to tap domestic
IDXJ manages an asset base of $10.1 million and provides
exposure to 28 small-cap securities of Indonesia. The fund
charges an expense ratio of 61 basis points annually.
The ETF appears to be concentrated in the top ten holdings to
which it allocates a hefty 58.23% of the asset base. Among sector
allocations, Financials dominates the list with a 39% share while
Industrials and Consumer Staples get the next two positions with
allocations of 27.1% and 14.5% of the asset base,
iShares MSCI Indonesia Investable Market Index Fund (
EIDO provides exposure to large cap segment of the Indonesian
economy. This fund also has seen double digit gains this year
although the returns were much lower than the small cap fund.
EIDO year-to date gains stand at 10.71%, so still an impressive
figure, especially when compared to other emerging markets (
4 Best ETF Strategies for 2013
The fund provides access to 93 Indonesian securities in which
the fund invests an asset base of $568.4 million. The fund
charges an expense ratio of 60 basis points annually.
EIDO has a concentrated holding pattern with almost 60% of the
asset base in the top ten holdings. For sector holdings, the fund
has invested in double digits in Financials, Consumer
Discretionary, Consumer Staples and Telecommunications.
Market Vectors Indonesia ETF (
This is another fund in the large cap segment. Although
returns from IDX are the lowest on the list, the ETF's
bounce back has been quite commendable. The fund's year-to date
gains stand at 8.31%.
The fund provides exposure to 41 large cap securities of
Indonesia. In this portfolio of securities, the fund invests an
asset base of $459 million. The fund charges a fee of 57 basis
Concentration risk is high in this fund. The top ten holdings
of the fund influence the IDX's performance to the extent of
57.6%. Among sector holdings, financials, consumer discretionary
and consumer staples enjoy double digit allocation.
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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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