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Indonesia ETFs Sidestep Emerging Market Sell-Off


The emerging markets have been getting hammered this year, but Indonesia exchange traded funds standing out, outperforming most Southeast Asian economies, as export growth bolstered the economy.

The iShares MSCI Indonesia ETF (EIDO) has gained 2.5% year-to-date and the Market Vectors Indonesia ETF (IDX) is up 0.7%. In comparison, the MSCI Emerging Markets Index is down 8.5%.

The Indonesian economy expanded a better-than-expected 5.7% in the fourth quarter, compared to average estimates of 5.3% and the third quarter’s 5.6%, reports Shuli Ren for Barron’s.

The expansion was due to accelerating exports, which rose 7.4% in the fourth quarter year-over-year from 3.8% in the third quarter, as domestic consumption slowed to 5.3% from 5.5%. [EM Account Surplus Trade Yields Mixed Results]

“We were particularly relieved to see consumer spending, which was very buoyant in 2Q and 3Q13, finally losing some steam,” HSBC analyst Su Sian Lim said in the article. “Today’s GDP report suggests that the broad-based domestic slowdown necessary to sustainably narrow Indonesia’s current account deficit and ease upward inflationary pressures may finally be emerging.”

Indonesia’s current account was at a $2.3 billion surplus in the last three months of 2013, compared to a $3.06 deficit in the third quarter, the Wall Street Journal reports. As the country moved into a trade surplus, the rupiah currency has remained better off in the latest round of global sell-offs.

Due to the minimal pressure on the rupiah currency, Bank Indonesia may maintain its current interest rates as consumer spending slows and ahead of the general elections, promoting economic growth. [Elections Are a Huge Boon for Indonesia Economy, ETFs]

“This may slow the narrowing of the current account deficit (CAD) to the level that BI sees as sustainable (i.e., 2-2.5% of GDP); we forecast a CAD at 2.7% of GDP this year,” Normura Securities analyst Enrico Tanuwidjaja said in the article. “Therefore, we believe BI can afford to stand pat next week.”

iShares MSCI Indonesia ETF

For more information on Indonesia, visit our Indonesia category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.