For Immediate Release
Chicago, IL – August 14, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the iShares MSCI Indonesia Investable Market Index Fund (EIDO-Free Report), Market Vectors Indonesia Index ETF (IDX-Free Report), Market Vectors Indonesia Small Cap ETF (IDXJ-Free Report), Archer Daniels Midland Company (ADM-Free Report) and The Andersons (ANDE-Free Report).
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Here are highlights from Tuesday’s Analyst Blog:
Like many other emerging economies, concerns over Southeast Asia's largest economy – Indonesia – have been growing since the beginning of the year as the nation is grappling with internal and external economic issues. Already facing the pain from a weak currency, slowing growth and widening current account deficits, the country is now perturbed by rising inflation rates as well.
The nation’s inflation rose to its highest level in July in four years, thanks to a fuel price rise in late June and higher food prices during Ramadan (Read: Emerging Market ETFs Tumble on Global Worries). Inflation was as high as 8.6% in July, up from 5.9% in June.
Indonesian Issues in Detail
The Indonesian currency, the rupiah, which lost strength in the near past mainly due to the outflow of foreign funds from the nation’s investable securities following taper talks, began to depreciate further with higher-than-expected inflation in the second quarter of 2013. With another round of inflationary pressure in the cards due to higher fuel prices, the rupiah will surely take a downturn in the coming days (Read: Indonesia ETFs Slide as Rupiah Tumbles).
In such a scenario, the Indonesian Central Bank may resort to the age-old formula of raising interest rates to counter inflation and save the Rupiah, but at the price of slower economic growth. Notably, the central bank had already hiked the benchmark interest rate at its previous two meetings by a total of 75 basis points (Read: Can You Fight Inflation With This Real Return ETF?).
Economic growth slowed down to 5.81% in second-quarter 2013 from 6.03% growth recorded in the first quarter marking the fourth successive quarter of sluggish growth.
Some stringent government restrictions, nationalist-friendly, ahead of the next year's general election have been thwarting foreign direct investments to the country and thus slowing the country’s winning momentum. These measures include levying of a tax on raw materials, tapering of import quotas for some goods, compelling foreign miners to slash their stakes in local mining companies.
As a result, exports contracted 8.6% sequentially in June 2013 while import growth shrunk, though less harshly, by 6.4%, leading to a bigger trade deficit. As of June end, the trade deficit was US$0.8 billion, up from US$0.5 billion recorded at May’s end. Also, continued slowdown in China, one of the largest markets for Indonesian exports, hit the nation’s export profile badly.
World Bank Trims Indonesian Growth Forecast
Last month, the World Bank cut its 2013 growth forecast for Indonesia to 5.9% from the prior projection of 6.2% (March 2013) keeping in view the muted internal demand resulting in a choppy outlook on investment, weaker export-competitiveness and softer commodity prices.
Per the World Bank, Indonesia faces budgetary weakness as it generates lower revenues and pays higher subsides. This combination has resulted in mounting pressure on public debt. In its quarterly economic outlook, the World Bank also hinted at heightened inflationary pressures in Indonesia.
Inflation for Indonesia is now expected at 7.2% for 2013 and 6.7% for 2014, as per the World Bank. In March 2013, the organization forecasted 5.5% of inflation for 2013 and 5.2% for 2014. As for the current account deficit, the World Bank now expects it to be 2.7% of GDP in 2013 (down from 2.5% projected in March) and 2.1% in 2014.
Indonesia ETF Impact
Quite expectedly, owing to such shocks, Indonesia ETFs have been suffering in the last six months. Three ETFs iShares MSCI Indonesia Investable Market Index Fund (EIDO-Free Report), Market Vectors Indonesia Index ETF (IDX-Free Report) and Market Vectors Indonesia Small Cap ETF (IDXJ-Free Report) lost about 10%, 8.9% and 3.1% respectively in the period. Needless to say, returns from all three ETFs underperformed SPY (up 12%) in the past six months.
The most popular Indonesia ETF, EIDO has $475 million in AUM with a tilt towards large caps and charges investors 60 basis points a year in fees. IDX – the oldest Indonesian ETF – amassed around $301 million charging investors 57 basis points a year while IDXJ, which focuses on small cap stocks, has assets around $6.4 million with an expense ratio of 61 bps. All three funds currently sport a Zacks ETF Rank #3 (Hold).
The recent downfall in Indonesia’s economic indicators might offer an attractive valuation and a good entry point to the country’s ETFs for risk- tolerant investors. In fact, the least popular among the three, IDXJ, fetched an impressive return of about 30% in the first quarter of 2013.
ADM Hits New 52-Week High
Shares of Archer Daniels Midland Company (ADM-Free Report) touched a new 52-week high of $38.59 on Monday, August 12, and eventually closed trade at $38.56. The stock has been performing well based on the company’s robust quarterly results and impressive inorganic growth initiatives. This specialty retailer has amassed a year-to-date return of 36.1%.
The average volume of shares traded over the last 3 months was approximately 3,520K. Moreover, the company currently trades at a forward P/E of 16.7x, in line with the peer group average. The last traded price is 11.0% above the Zacks Consensus average analyst price target of $34.75. Additionally, the company’s long-term estimated EPS growth rate is 8.7%.
Investors are optimistic about this Zacks Rank #3 (Hold) stock as it reported adjusted earnings of 46 cents per share for second-quarter 2013, that handily surpassed the Zacks Consensus Estimate of 41 cents and surged over 21% from the year-ago comparable quarter’s adjusted earnings of 38 cents. The company’s earnings primarily improved due to robust operating profit at the Corn Processing segment, partially offset by weak performance at its Agricultural Services segment.
We believe that Archer Daniels’ consistent focus on enhancing its processing capabilities and global footprint through strategic acquisitions and joint ventures bode well for future growth. We remain optimistic about the company’s recent attempt to acquire GrainCorp, which will not only enhance its financial position but also help in gaining market share in emerging economies. Nevertheless, we remain slightly anxious about the stock as the price of raw materials may rise in the near term due to decreasing U.S. crop production, which may hurt the company’s margins.
Apart from Archer Daniels, ag stock The Andersons (ANDE-Free Report) carries a Zacks Rank #2 (Buy).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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