Inside The Indonesia ETF Turnaround [Market Vectors Indonesia Index Etf, Market Vectors ETF Trust]

indonesiaAfter posting dismal returns last year, Indonesia ETFs had an impressive run during the first quarter of 2014. In fact, a popular Indonesian fund – iShares MSCI Indonesia (NYSEARCA:EIDO) –successfully recovered the 25% it lost during 2013, in the first three months of this year itself.

While huge current account deficits, tumbling currency, rising inflation and slowing growth led to the fund’s poor performance last year, the build-up to the parliamentary elections held in the country last month helped lift the markets higher during the first three months of 2014.

However, after posting gains for three straight months, Indonesian ETFs lost some momentum last month after PDI-P – Indonesia’s main opposition party – did not win enough seats in the parliamentary elections to send its presidential candidate, the Jakarta Governor, Joko Widodo, to the general election this July.

Investors should note that the news of Widodo being named as PDI-PI’s presidential candidate in mid March had spread a sense of optimism in the Indonesian equity markets. He was expected to bring in market friendly measures.

Nonetheless, the positive sentiment in the market is back again on the news that Indonesia’s presidential frontrunner has selected Golkar party’s Jusuf Kalla – a popular former vice president – as his running mate for the July elections (read:India Election Results: Can Indian ETFs Roar Higher?).

With Kalla on his side, there are bright chances of Widodo winning the ballot. Kalla, an influential public figure, was vice president during the first term of President Susilo Bambang Yudhoyono. During his tenure, Kalla was quite successful in inducing parliament to support government reforms.

High Hopes from Widodo

Popularly known as “Jokowi”, Widodo has become quite famous during his tenure as governor of the Indonesian capital Jakarta. Not only did his down-to-earth style win him immense popularity, but he is also expected to change the way the country has been ruled so far.

He is even wooing top fund managers with the bait that if elected he would bring in pro-investor measures such as a cut in fuel subsidies, improved infrastructure and significant bureaucratic reforms to attract investment, in an event organized byinvestment firm CLSA. Jokowi is also expected to improve workforce capability and encourage energy investment in Indonesia.

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