Indonesia ETF Sell-Off In Focus

indonesiaAs Treasury yields continue to rise in the U.S., concerns over emerging markets are building in tandem. These high beta markets are witnessing asset outflows thanks to weakened currencies and the perception that a further increase in U.S. yields will dull the appeal of these nations even more.

Seemingly, emerging markets are taking turns being sold off on a nearly daily basis, with losses exceeding 4% not uncommon. This trend first struck China, then India, and now Indonesia is in the crosshairs too (see all the Asia-Pacific Emerging ETFs).

Indonesia Sell-Off in Focus

Indonesian stocks experienced a massive sell-off in Monday trading with the Jakarta stock exchange plunging by 5% in the session. The nation’s currency also tumbled, pushing the rupiah to multi-year lows against the U.S. dollar.

The reason for this latest sell-off stems from the country’s growing current account deficit as exports decreased yet again. It doesn’t help that many of the country’s top exports are commodities that have fallen out of favor, including 25% losses in price for coal and palm oil since the end of 2011, according to Bloomberg.

If that wasn’t enough, inflation is also becoming a huge concern in Indonesia, as consumer prices are currently rising at an 8.6% clip. This is especially true given that the country’s central bank recently met and kept rates unchanged, suggesting that there is little concern from their perspective regarding the currency’s struggles as of late.

Add this in to a seemingly more hawkish Federal Reserve back in the U.S., and investors have a recipe for disaster in Indonesia. Asset prices have been tumbling across the board in the nation, and there are definitely worries that the trend will continue in the months ahead as well.

“Indonesia has seen a gradual but persistent bout of bad news, with slowing growth, quickening inflation and then the current-account deficit,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender by assets. “The implication going forward is that demand for dollars will increase.”

Market Impact: Indonesia ETFs

As you can imagine with this cloud of bad news, investments in Indonesia have been plunging lately. Currently, there are three ways to play Indonesia with ETFs, and all of these options have been crushed in this latest bout of weakness. Below, we highlight some of the key details regarding these funds for those looking for further insights into this extremely sluggish market:

iShares MSCI Indonesia ETF (EIDO)

The most popular ETF tracking the Indonesian market is EIDO, a product that follows the MSCI Indonesia Investable Market Index. The fund holds about 100 stocks in its basket, charging investors 60 basis points a year in fees for the exposure (see Southeast Asia ETF Investing 101).

EIDO is a bit concentrated in financials as these account for roughly 25% of assets, followed by consumer sectors which combine to make up a similar amount of assets. The product is a bit light on healthcare, energy, and utilities, while it has a significant focus on large cap stocks.

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