Down an average of 18.4% this year, the Market Vectors Indonesia Index ETF (NYSEArca: IDX) and the iShares MSCI Indonesia ETF (NYSEArca: EIDO) are probably looking forward to a change of the calendar and the start of 2014.
Investors expecting a significant 2014 rebound in Indonesian equities may end up disappointed. On Monday, J.P. Morgan revealed a less-than-rosy view of Indonesia stocks and the country’s already embattled currency, the rupiah, for 2014.
“We are concerned about Indonesian Rupiah. J.P. Morgan’s end-2014 forecast for the IDR is 11,800. The combination of a weakening currency and higher interest rates drives our UW in Indonesia,” according to a note from the bank posted by Barron’s.
The rupiah is the worst-performing emerging markets currency this year and a steady spate of interest rate hikes from Bank Indonesia has done little to stem the currency’s slide. In turn, Indonesia’s current account deficit has widened, giving global investors reason to avoid or dump the country’s stocks in favor of less volatile developing markets with current account surpluses and strong currencies, such as South Korea. [EM Currency ETF is Less Bad]
Further confirming the notion that J.P. Morgan’s assessment of Indonesia stocks could prove accurate is the fact that the Jakarta Stock Exchange Composite Index is trading close to the lower end of its historical range, but it is not as cheap as it was during the global financial crisis and Indonesian stocks still look somewhat pricy relative to the broader emerging markets universe. [Wait on Indonesia ETFs]
Making J.P. Morgan’s assessment of Indonesia heading into 2014 all the more ominous is that the bank is overweight on India and Thailand, two this year’s most repudiated emerging markets. Like Indonesia, India and Thailand have suffered from plunging currencies and there was talk earlier this year of technical recession for Thailand after two straight quarters of GDP contraction.
iShares MSCI Indonesia ETF
ETF Trends editorial team contributed to this post.