As Treasury yields continue to rise in the U.S., concerns over
emerging markets are building in tandem. These high beta markets
are witnessing asset outflows thanks to weakened currencies and
the perception that a further increase in U.S. yields will dull
the appeal of these nations even more.
Seemingly, emerging markets are taking turns being sold off on
a nearly daily basis, with losses exceeding 4% not uncommon. This
trend first struck China, then India, and now Indonesia is in the
crosshairs too (see
all the Asia-Pacific Emerging ETFs
Indonesia Sell-Off in Focus
Indonesian stocks experienced a massive sell-off in Monday
trading with the Jakarta stock exchange plunging by 5% in the
session. The nation's currency also tumbled, pushing the rupiah
to multi-year lows against the U.S. dollar.
The reason for this latest sell-off stems from the country's
growing current account deficit as exports decreased yet again.
It doesn't help that many of the country's top exports are
commodities that have fallen out of favor, including 25% losses
in price for coal and palm oil since the end of 2011,
according to Bloomberg
If that wasn't enough, inflation is also becoming a huge
concern in Indonesia, as consumer prices are currently rising at
an 8.6% clip. This is especially true given that the country's
central bank recently met and kept rates unchanged, suggesting
that there is little concern from their perspective regarding the
currency's struggles as of late (read
Indonesia ETFs Slide as Rupiah Tumbles
Add this in to a seemingly more hawkish Federal Reserve back
in the U.S., and investors have a recipe for disaster in
Indonesia. Asset prices have been tumbling across the board in
the nation, and there are definitely worries that the trend will
continue in the months ahead as well.
"Indonesia has seen a gradual but persistent bout of bad news,
with slowing growth, quickening inflation and then the
said Leo Rinaldy
, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of
the nation's largest lender by assets. "The implication going
forward is that demand for dollars will increase."
Market Impact: Indonesia
As you can imagine with this cloud of bad news, investments in
Indonesia have been plunging lately. Currently, there are three
ways to play Indonesia with ETFs, and all of these options have
been crushed in this latest bout of weakness. Below, we highlight
some of the key details regarding these funds for those looking
for further insights into this extremely sluggish market:
iShares MSCI Indonesia ETF (
The most popular ETF tracking the Indonesian market is EIDO, a
product that follows the MSCI Indonesia Investable Market Index.
The fund holds about 100 stocks in its basket, charging investors
60 basis points a year in fees for the exposure (see
Southeast Asia ETF Investing 101
EIDO is a bit concentrated in financials as these account for
roughly 25% of assets, followed by consumer sectors which combine
to make up a similar amount of assets. The product is a bit light
on healthcare, energy, and utilities, while it has a significant
focus on large cap stocks.
The ETF was down about 6.5% in Monday trading, pushing its
three month loss to 25.8%.
Market Vectors Indonesia ETF (
This is the original Indonesia ETF, having made its debut in
January of 2009. The product beats out EIDO by a single basis
point in fees, making it a slightly cheaper choice. However, by
tracking the Market Vectors Indonesia Index, IDX allocates its
assets to roughly 50 companies at time of writing.
Financials make for the top sector in this product, trailed by
consumer staples (15%) and consumer discretionary (13%). The
product is a bit light in health care, industrials, and real
estate, while it has a bit more diversified country holding
thanks to the index's focus on companies that do at least half of
their business in the country and not necessarily those that are
based in the nation.
This ETF fell by 5.6% in Monday trading on solid volume, while
its three month loss is now standing at 24%.
Market Vectors Indonesia Small Cap ETF (
For a focus on the smallest companies in Indonesia, investors
have this relatively new product from Market Vectors. The ETF
tracks an index of small and micro cap securities that are
heavily exposed to Indonesia, holding roughly 30 stocks in total
Avoid These 3 Emerging Market ETFs
The portfolio is pretty concentrated in a few choice sectors
though, as real estate (33%), industrials (27%), and energy (20%)
combine to make up four-fifths of the total assets. Still, the
portfolio is relatively well-spread out from an individual
holding perspective, as no single company makes up more than 10%
of the total.
This somewhat thinly-traded ETF saw an increase in volume on
Monday, though the price tumbled by 5.9%. From a longer term
perspective, the ETF has lost about 25.6% in the trailing three
months, making it a severe underperformer as well.
For extremely long term focused investors, Indonesia remains
well-positioned thanks to its consumer centric market and a huge
(not to mention young) population. However, it may continue to
see short-term volatility for a number of reasons.
These include worries over growth rates, a tumbling currency,
and general disdain for emerging markets, all of which are
combining to push Indonesian securities down to fresh lows. And
given the current trend in the space, we could definitely see
more losses for this market in the near term (see instead
Emerging Market Dividend Growth ETF Hits The
This suggests that the best course may be to avoid this market
for the time being, at least until the rupiah can stabilize and
investors regain their trust of emerging markets once more. Until
then, look for more uncertainty in the Indonesia ETF space, as
well as a number of other high beta emerging markets in the
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Author is long IDX
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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