Is Indonesia Doing Better Than Its Stock Market Suggests?

The Indonesia stock market, like the rest of the world, took a hit amidst the economic effects of Covid-19. Given its relative size, however, does the stock market serve as a reliable indicator of the overall economy?

James Guild noted in The Diplomat that “the exchange may be punching below its weight, relative to the size of Indonesia’s economy it has been growing rapidly, adding 147 new listed companies in just the last five years and reaching 55,000 active daily investors in 2019. The bond market has also been gathering steam, with the volume of government bonds increasing by 37.8 percent and corporate bonds by 18.6 percent from 2018 to 2019. This did not happen in a vacuum but is part of a larger vision for the economy. When President Joko “Jokowi” Widodo took office in 2014, he pushed for innovative ways to finance his expansive infrastructure plans.”

Getting Indonesia Exposure via ETFs

Exchange-traded fund (ETF) investors sensing an opportunity can look at the VanEck Vectors Indonesia Index ETF (IDX). IDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Indonesia Index.

The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index includes securities of Indonesian companies. A company is generally considered to be an Indonesian company if it is incorporated in Indonesia or is incorporated outside of Indonesia but has at least 50% of its revenues/related assets in Indonesia. Such companies may include small- and medium-capitalization companies.

In the meantime, the economic doldrums in Indonesia have been reflected in corresponding ETFs, such as the iShares MSCI Indonesia ETF (EIDO). EIDO seeks to track the investment results of the MSCI Indonesia IMI 25/50 Index.

The fund generally will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index. The index is designed to measure the performance of the large-, mid- and small-capitalization segments of the Indonesian equity market.

Investors who want broad exposure to EM can look at funds like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). VWO employs an indexing investment approach designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the index in terms of key characteristics.

For more market trends, visit ETF Trends.