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Indonesia ETFs: Value Plays?


Few emerging markets ETFs have under siege as much as the Market Vectors Indonesia ETF (IDX) and the iShares MSCI Indonesia ETF (EIDO). Declines for the two have been ongoing since the second quarter when “tapering” became a financial markets buzzword. Indonesia, Southeast Asia’s largest economy and the fourth-largest country in the world by population, was exposed as vulnerable to the loss of easy money from U.S. quantitative easing.

A $100,000 investment in EIDO at the start of the second quarter that was held through the end of August dwindled in value to about $60,000 at its nadir. That was the cost of dealing with ETFs exposed to the rupiah, the worst-performing emerging markets currency, and Indonesia’s widening current account deficit. [Indonesia ETFs Get Rate Hike Respite]

Although EIDO and IDX have recently bounced a bit, they are still savagely beaten with an average six-month loss of 25.5%. Some market observers see opportunity, even value in Indonesia. “We still like the fundamentals. We still like the story of the labor market and the consumption force coming in. A quarter billion people is a lot of people in any kind of economic climate,” said Wellian Wiranto, Asian investment strategist at Barclays, in an interview with CNBC.

Overall, the consensus on Indonesian equities is tepid, but not as bad as could be expected. “Indonesia’s favorable long-term growth story remains intact, but, in our view, it was never quite as positive as most people thought,” CNBC reported, citing Credit Suisse.

Some green shoots are emerging. During Tuesday’s Asian session, data showed that Indonesian consumer price inflation fell to 8.4% in September from 8.79% in August. That is well below the 9.03% September reading economists expected. Separately, Badan Pusat Statistik said that the country’s trade balance swung to positive territory last month. Analysts expected a negative reading. [Finally, Some Relief for Indonesia ETFs]

However, the idea of Indonesia as a deep value play is curious. EIDO sported a P/E ratio of nearly 17 and while it is possible that number has come in a bit, even around 15 times components’ earnings, Indonesian stocks would still be pricier than other emerging markets fare, including China and South Korea.

iShares MSCI Indonesia ETF

ETF Trends editorial team contributed to this post.

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.