Is it time to buy Indonesia ETFs? - ETF News And Commentary
Indonesia weathered the storm better than most of its counterparts when the global financial crisis struck. But the nation was hit hard by the recent emerging markets crisis.
While poor infrastructure, poverty & unemployment, corruption still remain a matter of concern inflation, current account deficit and high interest rates have lately weakened the growth prospects for the Indonesian economy.
Indonesian Economy & its Roadblocks
While the lull in the emerging markets has been pretty widespread, the epicenter of the turmoil has arguably been in Indonesia. (See: Southeast Asia ETF Investing 101 )
In fact, International Monetary Fund (IMF) lowered the economic outlook of Indonesia to 5.25% in 2013. IMF's earlier estimate in April this year was 6.3%. This was mainly due to fears regarding the Fed's tapering program and a slowdown in exports. and weak exports. (Read: Indonesia ETFs in Crash Territory on Currency Woes )
Weaker prices for commodities such as coal and palm oil have also been a major cause for weak export revenues.
Moreover, the Bank of Indonesia has raised the benchmark interest rate (BI) for the fourth time this year to 7.25%. This was mainly done to stabilize its currency rupiah and to control the widening inflation rate and current account deficit.
En Route to Growth
While there have been dark clouds surrounding the Indonesian economy there is still some ray of hope. While IMF has lowered its economic outlook for Indonesia this year, the economy is poised to return to growth in 2014 with improvements in the global economy.
According to the Next Generation Summit, the Indonesian economy may emerge as a significant player in the ASEAN Economic Community (AEC). (Read: Indonesia ETFs Surge on Surprise Rate Hike ).
While many investors may have lately bottomed out due to a weakening Indonesian economy, some may still consider this to be a buying opportunity as the country is poised to gain momentum in early 2014. Here we have chosen a few ETFs to play with.
Launched in May 2010, EIDO is one of the most popular Indonesian ETFs; this product trades in about 550,000 shares a day, tracking the MSCI Indonesia Investable Market Index. This benchmark produces a fund that has about 100 stocks in its basket, with two companies that have more than 10% of the total assets (see all the Asia Pacific Emerging Market ETFs ). The product has amassed about $407 million in assets so far.
Top sectors for this ETF include financials (27%), consumer discretionary (16%), and consumer staples (13%), while telecoms and real estate round out the top five. Large caps make up about 80% of the basket while mid caps receive a decent allocation of 11%. The product charges investors 62bps in fees.
The top 10 holdings of the product contribute about 58% share in the basket. Among individual stocks, Astra International, Bank Central Asia and Telekomunikasi Indonesia take the top 3 spots in the portfolio adding about 28%.
Market Vectors Indonesia ETF (IDX)
Launched in January 2009, IDX follows the Market Vectors Indonesia Index, holding a basket of about 50 companies that are based in or do a majority of their business in the Southeast Asian nation. It has an AUM of $246.6 million.
Financials and the two consumer sectors are the top three industries once again here, while assets are a bit more spread out as no one company makeing up over 9% of assets. Large caps are pretty prevalent though, as these make up 90% of assets, leaving just a tad for small and mid cap stocks. IDX charges investors 59 bps in fees.
The ETF is concentrated more in its top 10 holdings which contribute a share of 55.29%. Among individual holdings, Bank Central Asia, Telekomunikasi Indonesia and Astra International take the top 3 spots.
Market Vectors Indonesia Small Cap ETF (IDXJ)
Launched in March 2012, IDXJ is a small cap focused ETF, also from Van Eck's Market Vectors brand. The fund tracks the Market Vectors Indonesia Small Cap Index, holding about 34 stocks in its basket. It has a low AUM of only $5.1 million and charges investors 61bps in fees.
The fund does a decent job of spreading out assets as no single company makes up more than 7% of the total, though it is a bit concentrated from a sector look. Real estate (31%), industrials (26%), and energy (20%) take the top three spots and constitute the lion's share of the assets in IDXJ. (Find all small cap ETFs )
The top 10 holdings of the fund contribute a share of about 46% in the basket. Individual holdings include Citra Marga Nusaphala Per, Kawasan Industri Jababeka and Sentul City.
The Bottom Line
Indonesia ETFs have been terrible performers this year 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 rupiah (see instead 3 Emerging Market ETFs Still Going Strong ).
So investors willing to place their bets in the Indonesian economy should make sure to have a strong stomach before trending into this uncertain corner of the emerging market ETF world.