Indonesia exchange traded funds surged Friday after the central bank held rates unchanged with inflation holding steady and the current account deficit narrowing.
The iShares MSCI Indonesia ETF (NYSEArca: EIDO) rose 4.3% Friday while the Market Vectors Indonesia Index ETF (NYSEArca: IDX) gained 4.1%. Over the past year, EIDO and IDX both declined over 26%.
Indonesia’s central bank kept interest rates unchanged at 7.5%, Reuters reports.
“Do not rule out the probability of a BI rate hike this year,” Leo Rinaldy, an economist at Mandiri Sekuritas, said in the article. “We see further room for an increase in the BI rate, albeit limited, to maintain stability in the rupiah.”
Last year, Governor Agus Martowardojo implemented an aggressive rate-tightening policy, which slowed the economy and reduced imports, in an attempt to halt the depreciation in the rupiah after the currency hit a 5-year low against the U.S. dollar and the current account deficit widened to 4.4% of GDP in the second quarter of 2013. [Negative Economic Factors Plague Indonesia ETFs]
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.
The iShares EIDO ETF tracks 113 Indonesian stocks, but the fund is a little bit top heavy, with the top ten components accounting for 57.2% of the overall portfolio, compared to the Market Vectors IDX ETF, which has 53 holdings and the top ten make up 54% of the portfolio.
Both ETFs also have a significant weighting toward the financials sector – EIDO holds 32.5% in financials and IDX includes 29.9% in financials, followed by consumer discretionary and consumer staples allocations.
iShares MSCI Indonesia ETF
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