This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Is It Time to Buy Indonesia?

NEW YORK ( TheStreet) -- What in the world is going on in Indonesia? After such a fast decline, does it make sense to buy any of the exchange-traded funds that target the country?

For some background, Indonesia is a resource-rich economy exporting liquified natural gas, rubber and gold among several others. It used to be an oil exporter as well but as the country became wealthier its oil consumption increased and now it imports 400,000-500,000 barrels per day.

For the last few years Indonesian GDP had been running at a 6% annual pace, unemployment has been trending lower, per capita income has been going up, and even life expectancy has been improving dramatically.

The positive story was reflected in equity prices. Coming off the March 2009 low, the Market Vectors Indonesia Equity Index ETF (IDX) rallied 300% in two years, dramatically outperforming the iShares MSCI Emerging Markets ETF (EEM). Since the 2011 high IDX drifted sideways for a while in line with EEM until the start of this year. For the first five months of 2013 IDX went up 19% compared to a 1.5% decline for EEM.

Then Chairman Ben Bernanke's comments on May 22 about the possibility the U.S. Federal Reserve could start reducing its monthly bond purchases hit the domestic market and set off a domino effect in many emerging markets, including Indonesia.

The catalyst at work here is that Indonesia, along with many other emerging countries, have seen capital flow in as investors who normally invest in U.S. assets were forced to seek higher yields elsewhere. Indonesia has benefitted not only in its equity and fixed income markets but also foreign direct investment into the country.

It has been the emerging countries that most benefited from foreign direct investment that have been hit hardest and are perceived to be most vulnerable to the unwinding of quantitative easing in the U.S.

When U.S. interest rates eventually do normalize, investing in Indonesia might be less attractive. For now there has only been a vague hint of normalization and IDX has gone down 34% in just three months.

In addition to IDX, investors can access Indonesia through the iShares MSCI Indonesia ETF (EIDO) and the Market Vectors Indonesia Small Cap ETF (IDXJ). IDX and EIDO offer essentially the same large cap exposure and have traded in lock step since the second to market EIDO started trading in 2010.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
EIDO $27.58 -1.15%
EEM $40.74 -0.07%
IDXJ $14.11 0.50%
AAPL $128.46 -1.50%
FB $78.97 -1.79%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs