Indonesia Election, ETFs not to be Confused With India
Of the top-10 non-leveraged exchange traded funds on a year-to-date basis, three are India ETFs and three track Indonesian equities.
The group, which includes large-cap offerings and small-cap funds such as the Market Vectors India Small-Cap Index ETF (SCIF) and the Market Vectors Indonesia Small-Cap ETF (IDXJ) , has been bolstered by election-related ebullience in both countries. [Small-Caps in Focus After India Election]
But Indonesia ETFs are proving to be much different beasts than their India counterparts. For starters, the results of India’s national election are known. Narendra Modi is the victor and his BJP National Democratic Alliance will control in India’s Lok Sabha, that country’s parliament, marking the first time in three decades India has seen a parliamentary majority.
Things are much different in Indonesia, but almost as important to emerging markets investors. After all, Indonesia is Southeast Asia’s largest economy and the fourth-largest country in the world by population.
Shares of the iShares MSCI Indonesia ETF (EIDO) are off 4% Tuesday while the rival Market Vectors Indonesia Index ETF (IDX) is lower by 3.5% following news of a political split ahead of July’s presidential election.
Here’s the brief version of what is happening in Indonesia. Jakarta Governor Joko Widodo is widely seen as the front-runner and is often painted in a Modi-esque reform-minded light. Indonesian stocks and the aforementioned ETFs have, for much of this year, embraced the idea of Widodo becoming the country’s next leader. [Indonesia ETFs Get a Widodo Lift]
However, those ETFs are faltering Tuesday because Jusuf Kalla, the former chairman of Indonesia’s second-largest political party has decided to be Widodo’s running mate. Here’s where things get interesting: Kalla’s party, Golkar, has formed a coalition with Widodo’s rival, Prabowo Subianto.
Indonesian markets are no different than those in the U.S. or any part of the world when it comes to uncertainty. They do not like it as highlighted by the 2.4% drop for the Jakarta Stock Exchange during Tuesday’s Asian session.
A poll by Indikator Politik Indonesia indicates the Widodo-Kalla team would is preferred by 44% of voters, but the duo need to land at least 50% of the vote in July to avoid a September run-off, according to Bloomberg.
That run-off could unleash more market uncertainty, but there may be a silver lining for investors considering EIDO and IDX. The aforementioned poll shows Widodo-Kalla are comfortably ahead of their nearest rivals, indicating Tuesday’s slide could have created a buying opportunity in Indonesia ETFs.
EIDO and IDX have $803.3 million in assets under management combined. Indonesia is the world’s third-largest democracy behind India and the U.S.
Market Vectors Indonesia Index ETF
