Emerging markets exchange traded funds are off to another ominous start in 2014, but there are some glimmers of hope. One of those glimmers comes courtesy of a country that was among the worst offenders during last year’s emerging markets sell-off.
Call it a rebound or a dash to trash, but Indonesia ETFs certainly look better in 2014 than broader emerging markets funds. The bounce, albeit modest for the Market Vectors Indonesia Index ETF (NYSEArca: IDX) and the iShares MSCI Indonesia ETF (NYSEArca: EIDO) comes after both funds lost more than 23% last year.
Stocks in Indonesia, Southeast Asia’s largest economy, were repudiated as the rupiah was the worst-performing emerging markets currency, a scenario that exacerbated Indonesia’s current account deficit. Indonesia’s second- and third-quarter account deficits were $9.9 billion and $8.4 billion, respectively, which spurred Bank Indonesia to hike interest rates to 7.5%. [Rate Hikes Hamper Indonesia ETFs]
There is some improving news. Central bank deputy governor Perry Warijiyo said the current-account deficit for 2013 fell to 3.5 percent of GDP, after the more aggressive central bank policy, and is hopeful that the current-account deficit could dip below 3% this year. Indonesia’s economy grew 5.7% in 2013, the slowest pace in four years. The central bank governor projects growth to fall between 5.8% to 6.2% in 2014. [Central Bank Provides Relief to Indonesia ETFs]
Since the start of 2014, EIDO and IDX have each posted modest gains, outperforming the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) along the way. Of the major single-country ETFs tracking the 10 largest country weights in EEM, only EIDO and IDX are higher since the start of the year.
As the chart below illustrates, EIDO has, since the start of December, outpaced its South Korea, Taiwan, Thailand, and yes, Japan, equivalents.
A deeper look at IDX’s technical picture shows the ETF could be poised for further near-term upside.
“Indonesia may be trying to put in a bottom. Upside breakout of the recent downtrend, coupled with a bullish divergence in the RSI momentum indicator,” according to Captain John Charts.
