ETF Trends
ETF Trends
  • Indonesian stocks and country-specific ETFs have been standout in developing world
  • Indonesia for 2016 could turn out to be the story India was supposed in 2015, says HSBC Asia equity strategist
  • Indonesia’s economy is expanding as signs that President Joko Widodo has been able to gain support for his promised economic reforms

The emerging markets may be finally turning around, but Indonesian stocks and country-specific exchange traded funds have been a standout in the developing world.

Over the past three months, the iShares MSCI Indonesia ETF (NYSEArca: EIDO) increased 14.1% and Market Vectors Indonesia Index ETF (NYSEArca: IDX) gained 14.3%. Both EIDO and IDX recently saw their 50-day moving average break above their long-term, 200-day moving average, forming a bullish golden cross.

“Indonesia for 2016 could turn out to be the story India was supposed in 2015,” Herald van der Linde, Asia equity strategist at HSBC, told the Financial Times.

Jakarta’s Benchmark index strengthened 4.8% so far this year, or 9.7% in U.S. dollar terms, ranking among the top 10 performing markets in the world. In contrast, the global emerging markets dipped 1% this year. Additionally, the Indonesian market has continued to gain ground, despite fears of a Chinese slowdown.

Indonesia’s economy is expanding as signs that President Joko Widodo has been able to gain support for his promised economic reforms that should revive growth.

“Basically, people think that stuff is going to get done — and that will lift growth,” David Mann, chief economist for Asia at Standard Chartered, told the Financial Times. “Across the region, countries that look like they’re getting better at doing what they said they’d do are getting noticed.”

For instance, analysts point out that Widodo is adding jobs in major construction projects for unskilled labor, which could stimulate demand for basic consumer goods.

“You need to go mass market as far as tactics go in Indonesia because that’s where Jokowi’s going,” Harry Su, head of research at Bahana Securities, told the Financial Times “Jokowi is heading to provide a lot of support for people in the low end through job creation, through infrastructure projects.”

Moreover, slowing inflationary pressures and speculation of additional interest rate cuts are enticing investors. Bank Indonesia has reduced benchmark rates to 7% from 7.5% earlier this year. However, the lower rates could weigh on the financial sector, which has underperformed.

The financial sector makes up 37.3% of EIDO’s portfolio and 34.0% of IDX’s holdings.

iShares MSCI Indonesia ETF