In late 2011, Fitch Ratings became the of the three major
ratings agencies to restore Indonesia's investment-grade status
after a 14-year stint spent in the credit
purgatory that is junk status
.
Moody's Investors Service followed in January, saying
"Indonesia's cyclical resilience to large external shocks points
to sustainably high trend growth over the medium term. A more
favorable assessment of Indonesia's economic strength is
underpinned by gains in investment spending, improved prospects
for infrastructure development following key policy reforms, and
a well-managed financial system."
"In addition, robust growth has been accompanied by the
continued health of its external payments position, supported by
increasingly large flows of foreign direct investment, while
inflationary expectations are becoming better anchored at a more
stable and historically lower level. Prudent fiscal management
has contained budget deficits at very low levels and has reduced
the government's debt burden as a share of GDP," the
ratings agency added
.
While the Market Vectors Indonesia Index ETF (NYSE:
IDX
) and the iShares MSCI Indonesia Investable Market Index Fund
(NYSE:
EIDO
) have been somewhat disappointing this year relative to other
Southeast Asian emerging markets ETFs, Indonesia is still a
country with immense
long-term economic potential
.
Standard & Poor's, the only major ratings agency that
still retains a junk rating for Indonesia, didn't get the memo.
The ratings agency is grappling with Indonesia's inability to
implement fuel subsidy cuts in the face of rising oil prices,
according to
Emerging Money
.
Today, S&P praised Indonesia's strong economic
fundamentals and soaring first-quarter foreign direct investment
figures while reiterating a positive outlook on the country. But
the fuel subsidy issue is the sticking point.
Investors in IDX, EIDO or the newly minted Market Vectors
Indonesia Small-Cap ETF (NYSE: IDXJ) need not panic because of
S&P's reluctance to remove Indonesia's junk status. IDX has
been one of the best-performing non-leveraged ETFs since the
March 2009 market bottom
and most of those gains were accrued with all of the ratings
agencies holding junk ratings on Southeast Asia's largest
economy.
Not to mention, S&P has a history of being slow to
downgrade problem countries, so it's no surprise it would be slow
in upgrading a country with some promise. For example, the
iShares MSCI Spain Index Fund (NYSE:
EWP
) had fallen from around $50 in late 2009 to $40 in early 2010
before S&P got around to downgrading that country. The
iShares MSCI Italy Index Fund (NYSE:
EWI
) plunged nearly 40% between April and September 2011 before
S&P got around to its downgrade of Italy.
Bottom line: Foreign direct investment in Indonesia is expect
to soar this year and there is robust international demand for
Indonesian bonds, indicating smart global investors might be
putting little value on S&P's views on Indonesia's
ratings.
For more on Indonesia ETFs, please click
HERE
.
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