By and large, Indonesia
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
, or the
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
the Market Vectors Indonesia ETF (
iShares MSCI Indonesia Investable Market Index Fund (
-and a small cap option as well, the
Market Vectors Indonesia Small Cap ETF (
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
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
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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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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