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Indonesia ETFs Soaring On Political Hopes

March 18th, 2014

indonesiaElections have taken center stage in Indonesia. Southeast Asia’s largest economy is due for its parliamentary election in April and its presidential election in July. This has sent the Jakarta stock market higher since the start of the year. The likelihood of an influx of campaign spending bolstered the companies having more domestic exposure especially which hail from food, consumer staples and media businesses, as per Bloomberg.

A few of the leading investment managers of Indonesia appeared optimistic about the country’s stock market performance this year. Historically, the Jakarta stock index added massive returns in the prior two election years – 87% in 2009 and 45% in 2004. Investors have every reason to believe that 2014 will be no exception.

If this was not enough, Indonesia’s main opposition party, PDI-P, declared on Friday that the popular Jakarta governor Joko Widodo  will be its presidential candidate. This spread another round of positive vibes in the investing world and the Indonesian market climbed about 3% on the news.

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Its currency, the rupiah, also jumped to its highest level against the dollar in five months. The top two pure-play ETFs on Indonesia – iShares MSCI Indonesia Investable Market Index Fund (NYSEARCA:EIDO) and Market Vectors Indonesia ETF (NYSEARCA:IDX) – gained as much as, respectively, 6.5% and 6.0% on Friday’s session.

Investors by and large seem confident about a seamless voting process in July with the extremely popular (especially among the poor and middle classes) Jakarta governor’s candidature. The investing community expects him to run the world’s third largest democracy post election. Within one year of his service as the governor of the Indonesian capital Jakarta, Joko Widodo – a furniture manufacturer – has gained quite a following among the masses.

A Jokowi presidency is being viewed as a trend reversal in Indonesian politics which has been so far regulated by the members of the military and influential political figures. Also, the world market now expects a radical change in the policy making of the nation which was underperforming heavily thanks to weak leadership, slowing growth, widening current account deficit and a tumbling currency.

How to Tap This Opportunity?

Investors should note that Indonesia has been Asia’s best performer this year, advancing more than 20% even amid the Ukrainian crisis and its geopolitical impact on the global markets (read: How Did Indonesia Avoid the Emerging Market ETF Slump?).

Three Indonesian ETFs, EIDO, IDX and Market Vectors Indonesia Small-Cap ETF (NYSEARCA:IDXJ), have returned 24.8%, 20.1% and 27.2%, respectively, while the broader emerging market fund,  iShares MSCI Emerging Markets ETF (NYSEARCA:EEM), lost more than 7% year-to-date. We have highlighted below the three Indonesia ETFs in detail:

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NYSE:EIDO, NYSE:IDX


 

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