Indonesian ETFs Bleeding Assets

The Indonesia iShares Indonesia Investable Market Index Fund ETF (NYSEarca: EIDO) and Market Vectors Indonesia Index ETF (NYSEarca: IDXhave led all percentage declines early Monday as the market reacts to the Fed’s expected December rate-hike and the Bank of Indonesia’s shrinking reserves.

Bloomberg reported over the weekend that despite a 7% rebound in the rupiah last month the Indonesian central bank’s stockpile fell for an eighth month, by $1bn, because of the rising costs of the government’s foreign debt.

The projected rate-hike will most tangibly effect Indonesia by further increasing the costs of servicing foreign debt because of the likely appreciation of the dollar. (Making Sense of Dollar Strength)

A look at the WisdomTree Bloomberg US Dollar Bullish Fund (NYSEarca; USDU) shows the upward trajectory on speculation alone as the strong jobs report on Friday rocketed investor expectations of the hike.

Indonesia’s exposure to risk of a strengthening dollar isn’t unique but the dwindling reserves of the central bank is weighing on investor belief that the nation’s debt will be serviced and the equities will be profitable.

EIDO has seesawed the last month or so between bad and even returns but opened Monday with a 4%+ plunge and IDX has followed a similar trajectory.

EIDO is down 21.40% YTD and seeks to reflect the investment results of a board-based index composed of Indonesian equities. The ETF is heavily weighted to financials and consumer discretionary which doesn’t favor the realities of the strengthening dollar.

The recession comes only a few weeks after the ETF rode the October rally above its 50-dayMA but has remained below its 200-day for quite some time. Fundamentals and speculative stances are making long positions very questionable.