While the pain in emerging markets has been pretty widespread,
the epicenter of the turmoil has arguably been in Indonesia. The
huge island nation in Southeast Asia was long an emerging market
gem, but it has fallen by the wayside in weeks past as worries over
broad emerging markets, growth, and inflation have rocked this
country more than others.
In fact, the currency of the nation, the rupiah, has lost more than
10% of its value against the dollar in the past month alone, with
exchange rates vs. the greenback collapsing this summer, after a
pretty stable start to 2013 (see all the
Asia Pacific ETFs
Meanwhile, concerns are building over growth and inflationary
levels in this consumer-centric economy. Growth
has fallen below 6% a year
, while inflation is now coming in at over 9% a year, eroding any
GDP gains in the process.
This is a rough backdrop for any nation, but when you add in broad
emerging market woes thanks a possible QE-taper, you have a perfect
storm for losses. This is pretty much what has happened in the past
few weeks as the country's three main ETFs, the two large cap
, as well as the small-cap centric
, have plunged.
All three have lost more than 20% in the past one month time frame,
pushing the group to within striking distance of their 52 week
lows. Plus, IDXJ has actually lost more than 25% of its value in
the period, putting the product decidedly in bear market territory
Indonesia ETFs in Crash Territory
Ray of Hope?
While this has obviously been a horrendous situation, there is some
hope that the selling pressure might finally be coming to an end.
Prices for this Indonesia ETF trio have moved a bit higher in
recent days, and the latest news from the country could act as a
true positive catalyst as well.
That is because the country's central bank has stepped in to
support the rupiah, and hopefully restore some confidence in the
nation's financial system. Bank Indonesia raised its benchmark rate
by fifty basis points up to 7% in an unscheduled move.
, it also raised the deposit facility rate to
while it also extended a swap agreement with the Bank of Japan. The
moves helped to boost the rupiah in Thursday trading, while it let
some investors feel as though the central bank was finally getting
in front of the problem.
The move also comes as a number of other emerging market central
banks have taken measures to support their struggling currencies as
all have been losing ground as of late against the dollar. This
kind of coordination could also help to boost confidence and might
signal that the worst is nearing an end for these emerging markets,
especially if these new measures produce results.
In addition to boosting the rupiah in trading, the moves also
helped to stabilize the aforementioned Indonesian ETFs as well. All
three moved higher by more than 4% following the news, on solid
levels of volume too (see
Can Indonesia ETFs Bounce Back?
However, it should be noted that this sharp move higher doesn't
even put the ETFs back to breakeven for the trailing five day
period. All are still down more than 5.5%, even with this big one
Furthermore, when taking a longer term look, the recent jump seems
like a blip on the radar, as losses from multiple months are still
significant. In fact, all three of the ETFs are still down more
than 30% in the past three months, suggesting there is still a long
way to go to get back to breakeven for these ETFs.
Indonesia ETFs have been terrible performers as of late thanks to a
number of factors. Rising inflation, slowing growth, and general
emerging market concerns have plagued the country causing a
near-crisis for the nation's stocks and its currency (see instead
3 Emerging Market ETFs Still Going Strong
However, a recent central bank move in the nation-as well as
similar moves by other embattled emerging markets-could bode well
for the country in the future. Should these policy decisions boost
confidence and stem the emerging market currency slide, this could
prove to be an interesting long term entry point for investors
willing to tolerate significant volatility as this country (and
others) adjusts to the new economic climate at hand.
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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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