Two Emerging Countries With Biggest Gains In Feb.


Indonesia and the Philippines won awards for the hottest investor destinations in February. ETFs tracking the Asian countries scored the biggest gains in a month in which the global stock markets pulled back slightly, closing in the red.

iShares MSCI Indonesia Investable Market Index ( EIDO ): +10.66%

Market Vectors Indonesia Small-Cap ( IDXJ ): +10.20%

Market Vectors Indonesia Index ( IDX ): +9.17 %

IShares MSCI Philippines Investable Market Index ( EPHE ) : +7.41%

The major global benchmarks by contrast took a breather from strong uptrends that started in June.IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, fell 1%.IShares MSCI Emerging Markets Index (EEM) 2%.

Indonesia and Philippines are the two biggest growth stories in Asia as investors look beyond China and India, says Minyi Chen, chief financial officer and chief operating officer at TrimTabs Investment Research in New York. "Investors were skeptical and in general shunned the emerging markets in the second half of last year," Chen said in an email. "I think the rally in these countries shows that investors are now starting to move back again."

Indonesia and the Philippines enjoy strong economic growth while holding relatively low debt levels compared to many developed countries. Their economies are less dependent on commodities and exports than most emerging markets.

"In emerging markets, financials as well as consumer sectors (consumer discretionary, consumer staples, and health care) have been greatly outpacing commodity sectors since 2008," Tony Welch, an emerging market analyst at Ned Davis Research, wrote in an email.

"The market leaders have been the economies that can rely on a strong consumer and not as dependent on exports to developed markets, especially to Europe."

Reasons To Visit Indonesia

When measured in local currency, the Indonesian stock market returned 12% last year. But IDX returned a paltry 3% vs. 19% for EEM because of the rupiah's weakness against the dollar. IDX's chart has broken out a bullish cup-with-handle base with a 29.82 buy point. It broke out of the pattern in double average volume Wednesday and currently trades 7% above that buy point. It's 9% below its August 2011 high of 34.99.

IDX has a 65 IBD Relative Strength Rating and a superb Accumulation/Distribution Rating of A- on an A-to-E scale. This shows its price action has outpaced 65% of the market the past 12 months and that big institutional investors are heavily buying shares and selling few.

Indonesia's economy is thriving from a credit ratings upgrade, strong foreign investments, increasing consumption, import growth, Neena Mishra wrote for Zacks Investment Research .

Philippines Performance

EPHE reigned as the No. 1-performing country in Asia last year, returning an eye-popping 48%. It's up 16% year to date. It's trading 24% over a 32.39 buy point in a bullish, three-weeks-tight pattern. That occurs when a stock or ETF closes within 1.5% of the prior week's close for two weeks in a row. This tight trading action shows that buyers support the price at the slightest bit of selling.

EPHE has a very strong IBD RS and Acc/Dis Ratings combination of 90 and A-, indicating it's outperformed 90% of the market over the past 12 months and institutions are heavily buying shares.

"Thanks to its large educated young population that can speak English, the Philippines has been growing in popularity as a BPO (business process outsourcing) destination," Mishra wrote in an email. "(The) current administration led by President (Benigno) Aquino has been very effective in combating corruption and tax evasion."

Investment Risks

One of the major risks of investing in these countries is fluctuations in foreign currencies, Chen warns.

"A depreciation in the Indonesian rupiah or Philippine peso can be a drag on performance," Chen wrote. "Also, investors should understand that if they invest in country ETFs, those ETFs will have a higher correlation with the U.S. stock market than the shares traded on the local exchanges. Therefore it may give you less diversification than you'd expect."

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: EFA , EIDO , EPHE , IDX , IDXJ

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