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A Pleasant Emerging Markets Surprise

ETF Professor

Few if any emerging markets were spared in last year's bloodbath. The 2018 decline of 15.3 percent for the MSCI Emerging Markets Index ensnared a slew of developing economies from Asia to Latin America and beyond.

The MSCI Emerging Markets Index is up 5.23 percent to start 2019, indicating emerging markets equities are making good on the rebound potential so many market observers highlighted late last year.

What Happened

Among the markets decked by last year's emerging markets slide was Indonesia, Southeast Asia's largest economy. The MSCI Indonesia Investable Market Index in 2018 lost more than 10 percent. The iShares MSCI Indonesia ETF (NYSE: EIDO) and the VanEck Vectors Indonesia ETF (NYSE: IDX) declined an average of 10.55 percent.

Slumping commodities prices, the stronger U.S. dollar and rising U.S. interest rates were among the factors hampering Indonesian stocks in 2018.

Why It's Important

Obviously, 2019 is still in the early innings, but Indonesian stocks are leading the emerging markets rebound. Following Wednesday, when both EIDO and IDX gained more than 1.30 percent, the two Indonesia ETFs are flirting with year-to-date gains of 10 percent.

On Wednesday, a dozen US-listed ETFs hit six-month highs. EIDO and IDX were two of those 12 funds. EIDO and IDX reside about an average of 12.50 percent below their 52-week highs.

Last year, Indonesia posted its widest ever trade deficit, which likely hampered the country's equity markets. The silver lining is imports jumped because the country's domestic economy is on sound footing.

Tighter monetary policy was also an issue. Last year, Bank Indonesia, the country's central bank, raised interest rates six times. Bank Indonesia meets today, but is widely expect to not hike rates.

What's Next

EIDO holds 76 stocks and allocates over 37 percent of its weight to the financial services sector. Consumer staples and communication services stocks combine for over 29 percent of the ETF's weight.

IDX, the older of the two Indonesia ETFs, holds 43 stocks, 31.2 percent of which are financial services names. The consumer staples and discretionary sectors combine for almost 29 percent of that ETF's weight.

Investors have added $65.45 million to EIDO to start 2019.

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