Stocks in Indonesia, Southeast Asia’s largest economy, are lagging the broader emerging markets complex this year. The VanEck Vectors Indonesia Index ETF (NYSEArca: IDX) is up just over 2% while the MSCI Emerging Markets Index is up 9.14%.
However, some market observers believe next year could bring good things for Indonesian stocks. Indonesia is a major exporter of commodities, including palm oil and coal. Prices on these raw materials have slipped this year on rising speculation of a global slowdown in response to increased trade barriers, notably between the U.S. and China.
“After two years of stagnant growth, Indonesian stocks will hit a record in 2020, when President Joko Widodo’s policies to shore up the economy take effect, say analysts from JPMorgan and Morgan Stanley,” reports Bloomberg.
IDX turns 11 years old next month and follows the MVIS Indonesia Index, “which includes securities of companies that are incorporated in Indonesia or that are incorporated outside of Indonesia but have at least 50% of their revenues/related assets in Indonesia,” according to VanEck.
While current account deficits and the US/China trade war have hampered Indonesian equities this year, 2020 could bring better scenarios for IDX.
“JPMorgan, which says it’s the most bullish on the Street, sees the benchmark Jakarta Composite Index rallying 19% from the current level to a record 7,250 by the end of 2020. Morgan Stanley expects the MSCI Indonesia Index to surge 11% to 7,800. Both brokerages are overweight the nation’s equities,” according to Bloomberg.
Indonesia has been struggling to cut down its widening trade deficit after reaching a record high of $8.5 billion last year, even with authorities raising import taxes and relaxing export rules to tighten the gap.
“The Indonesian benchmark gauges are slated for their second annual decline after rallying more than 30% in the previous two years. In his final term that began in October, Jokowi, as Widodo is known, has shown an urgency in pursuing tough reforms such as an overhaul of labor laws, a roadmap for lower corporate taxes and the streamlining of a multitude of rules hampering foreign investors,” reports Bloomberg.
For more information on the Indonesian market, visit our Indonesia category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.