Indonesia ETFs Slide on More Currency Troubles

With the decision of the Fed not to taper, many international securities were huge beneficiaries. Stock prices in emerging markets soared as both the dollar weakened and the risk-on trade came back, leading to big moves in a variety of nations.

This was especially good news for the hardest hit markets, and in particular, Indonesia. This country was down double digits in the trailing three month period, and for the previous six months, lost more than one-third of its value. However, in the ‘no taper’ aftermath, gains of as much as 8% were seen in some ETFs tracking the nation, underscoring just how much of an impact this Fed decision had on a few beaten down countries.

Since the Decision

After the ‘no taper’ decision day though, stocks in Indonesia have struggled to hold onto their gains. In fact, ETFs tracking the market are now on the verge of going into negative territory for the trailing five day period, meaning that they have already given back all of the big gain that was seen in the Fed meeting aftermath.

The biggest reason for the slump lately though has been the declining value of the country’s currency, the rupiah. The country reached a near term low of 10,847 rupiah against the dollar, but it now trading around the 11,500 mark against the greenback. This is once again within striking distance of the 52-week low level for the currency, further showcasing the recent bout of weakness for the rupiah (see Indonesia ETFs in Crash Territory).

The recent trading also suggests that traders are starting to become a little pickier when it comes to emerging market exposure. According to a recent FT article, some investors were upset by recent policies by the Indonesian central bank which sought to smooth out the rupiah’s recent slide, while there has also been talk of looking to other markets in the region for more stability at this time as well.

“When we talk to clients, they say between India and Indonesia they prefer India because they can get out of their positions if they need to, said Claudio Piron, a strategist at Bank of America Merrill Lynch in Singapore for the Financial Times article. "The [dollar] liquidity is there and the price transparency is there.”

Thanks to this short-term bearishness, Indonesia ETFs have been in trouble lately. However, if they can stabilize their currency, they could be interest—albeit volatile—picks for intrepid investors. For those looking for more about some of the picks in this space, we have highlighted a few of the key points regarding the three main ETFs tracking the country below:

iShares MSCI Indonesia ETF (EIDO)

The most popular Indonesia ETF, this product does about 550,000 shares of volume 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).

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 do receive a decent allocation at 11% as well.

EIDO is now down about 0.7% over the past five sessions, while its six month loss is at 23%.

Market Vectors Indonesia ETF (IDX)

The original Indonesia ETF, this product has a bit less in assets and AUM than EIDO, though it is still quite popular with roughly 375,000 shares moving hands on a daily basis. The ETF 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.

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 makes 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.
In terms of performance, IDX is now down about 1.35% in the past five days, while its six month loss is at 21.15% (see all the top Ranked ETFs here).

Market Vectors Indonesia Small Cap ETF (IDXJ)

For a more volatile play on Indonesia, investors have this 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, though it remains somewhat unpopular with investors.

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.

Since IDXJ is more volatile, it tends to lose more during down periods and the most recent one is no exception. The fund has slumped by 30.2% in the past six months, while it has slid by 1.14% in the trailing five day time frame.



Bottom Line

Many thought the worst was over for Indonesia ETFs following the surprise Fed announcement. ETFs tracking the nation surged in the aftermath of this report, and much like other emerging markets, appeared to be back on track (see 3 Emerging Market ETFs Surviving the Slump).

However, investors are still having trouble trusting the country’s currency, the rupiah, especially compared to others in the region. Thanks to this, we are still seeing losses in the country’s ETFs, as these are tumbling for dollar denominated investors.

It remains to be seen if Indonesia can pull out of this latest slide and if the nation’s currency can stabilize. Clearly, the market is beaten down so some great values are starting to appear, but the volatility is certainly a concern, so make sure to have a strong stomach before trending into this uncertain corner of the emerging market ETF world.

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Author is long IDX.
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