The sharp global rally left Indonesia country-specific exchange traded funds in the dust after Credit Suisse Group AG downgraded Indonesian equities to a sell rating in anticipation of a weak phase ahead.
On Tuesday, the iShares MSCI Indonesia ETF (NYSEArca: EIDO) fell 1.2% and VanEck Vectors Indonesia Index ETF (NYSEArca: IDX) dropped 1.0% while the benchmark MSCI Emerging Markets Index gained 1.0%.
Dragging on the Indonesian equities, Credit Suisse downgraded Indonesia’s market to a sell rating, Bloomberg reports.
“We now see an opportunity to reduce exposure to Indonesian assets before the market enters a phase of underperformance,” Credit Suisse analysts led by Alexander Redman wrote in a recent research note.
The bank’s research team has taken up a bearish call, citing six reasons why investors should sell the nation’s shares, including an overbought rupiah and stock market, a liquidity squeeze and economic growth that may be set for “strong negative revisions.”
Credit Suisse’s severe censure of Indonesia’s market comes as a surprise, especially after the government backlash J.P. Morgan Chase & Co. received over two years ago for a similar move. When J.P. Morgan downgraded its outlook on equities in Southeast Asia’s largest economy in late 2016, Indonesia’s finance ministry responded by cutting off ties with the Wall Street bank and ceased using the firm as a primary dealer and underwriter of the country’s sovereign bonds. Whether it was a coincidence or not, J.P. Morgan raised its recommendation on this emerging market to neutral a few weeks later, arguing for lower redemption and bond volatility risks.
While the rest of the global markets rebounded Tuesday, the benchmark Jakarta Composite Index fell as much as 1.6% Tuesday, falling for the fourth consecutive day, its longest losing streak since October.
Global markets, notably emerging markets, were strengthening Tuesday on expectations that the prolonged U.S.-China trade war tiff would soon come to a conclusion after promising words from President Donald Trump on the progress of trade talks.
For more information on the Indonesian market, visit our Indonesia category.