Indonesia country-specific exchange traded funds, like the broader emerging markets, have been weakening in recent weeks, but Indonesia’s markets climbed Thursday as foreign investors return to this developing economy.
On Thursday, the iShares MSCI Indonesia ETF (NYSEArca: EIDO) gained 3.1% and VanEck Vectors Indonesia Index ETF (NYSEArca: IDX) increased 2.8%. Year-to-date, EIDO declined 15.1% and IDX fell 13.6%.
The Indonesia’s benchmark Jakarta Composite Index rose Thursday, experiencing its best daily increase in 22 months, after foreign investors returned to the market the day before following 21 consecutive days of outflows, Bloomberg reports.
For example, EIDO experienced $107 million in net outflows over the past month, according to XTF data.
Better Days Ahead
The sudden turnaround may be a sign of better days ahead, according to Wilianto Ie, President Director of PT Maybank Kim Eng Securities.
“The money flow has to come back to Indonesia,” Ie told Bloomberg. “I’m optimistic about the outlook as foreign outflows have subsided and many of the negative concerns about Indonesian stocks have been addressed.”
Ie pointed to rebounding consumer spending and an unexpected trade deficit in April was proof that local businesses are confident about future sales. Ie projects the Jakarta Composite to hit 7,100 by the end of next June if not the end of this year. The Jakarta Stock Exchange Composite Index was hovering around 5,947 Thursday.
Indonesian stocks also strengthened as new Bank Indonesia Governor Perry Warjiyo pledged on his first day on the job to take more pre-emptive measures to maintain stability in the rupiah currency.
The central bank would become more preemptive in its search for stability amid pressures facing the currency. “We are planning to become more preemptive, frontloading, more ahead of the curve in the interest rate response,” Perry said, according to The Jakarta Post.
Perry also added that the central bank will continue its dual intervention policy to support markets by supplying forex to the monetary market to maintain liquidity and buying government debt in the secondary market. The central bank had acquired almost Rp 50 trillion, $3.52 billion, to purchase government bonds sold by foreign owners.
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