Indonesia’s GDP Growth Misses Expectations: ETFs in Focus

10-Nov-2017 Intellasia | Nasdaq | 6:00 AM Print This Post

Indonesia’s economy grew slower than expected. GDP for the third quarter grew 5.06 percent year over year, per Badan Pusat Statistik Indonesia. This was below expectations of 5.13%, per a Reuters poll. Indonesia’s GDP grew 5.01 percent year over year in the second quarter of 2017.

Indonesia’s consumer prices increased 3.58 percent year over year in October compared with 3.72 percent in September and 0.01 percent on a monthly basis, per the Central Statistics Agency. The inflation is well within the central bank’s target range of 3-5%.

Economic Fundamentals

Indonesia’s central bank unexpectedly cut its benchmark interest rate twice, by 25 basis points each in August and September. It now stands at 4.25%. This was primarily possible because of the low inflation the country is experiencing (read: Indonesia Unexpectedly Cuts Interest Rate: ETFs in Focus ).

Commodity prices have been rebounding on stronger global growth cues. This has led to an increase in Indonesian exports, as it increased 17 percent year over year in the third quarter. However, consumer spending and credit growth continues to be subdued despite the central bank having cut its key benchmark interest rate eight times since last year. Consumer spending increased 4.93 percent year over year in the third quarter compared with 4.95 percent in the previous quarter.

These factors introduce a possibility of the central bank easing policy further in the coming monetary policy meets.

External Factors

Foreign Direct Investment (FDI) increased 12 percent year over year in the July-September quarter compared with 10.6 percent in the second quarter. Indonesia’s economy is projected to grow 5.4 percent in 2018. However, finance minister Sri Mulyani Indrawati said that a pickup in investments might help GDP to grow at a faster pace.

The Federal Reserve left its benchmark interest rate steady in the October meeting, but the markets widely expect the Fed to hike rates in December. Per the CME Fed watch tool, there is a 96.7 percent chance of a rate hike by 25 basis points.

Although a rate hike generally reduces the appeal of emerging market investments, the impact of these events on the Indonesian markets is still difficult to predict. This is primarily because markets are scaling record highs and showing lesser correlation to events that are generally a game changer for emerging markets.

In the current scenario, let us discuss a few ETFs focused on providing exposure to Indonesian equities (see all Broad Emerging Market ETFs here ).

This fund is appropriate for investors looking to gain exposure to companies based in Indonesia. Thus, it offers a pure play on Indonesia.

It has AUM of $483.7 million and charges a fee of 63 basis points a year. From a sector look, Financials, Consumer Discretionary and Telecommunication Services are the top three allocations of the fund, with 34.3%, 13.6 percent and 13.1 percent exposure, respectively (as of November 3, 2017). From an individual holdings perspective, Bank Central Asia, Telekomunikasi Indonesia and Bank Rakyat Indonesia (Persero) are the top three holdings of the fund, with 11.4%, 11.4 percent and 9.8 percent allocation, respectively (as of November 3, 2017). The fund has returned 13.1 percent year to date and 7.2 percent in a year (as of November 6, 2017). EIDO has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

VanEck Vectors Indonesia Index ETF IDX

This fund seeks to provide a bet on Indonesia by investing in companies based out of the nation or the ones who have a great deal of business interest there.

It has AUM of $65.6 million and charges a fee of 58 basis points a year. From a sector look, Financials, Consumer Staples and Consumer Discretionary, are the top three allocations of the fund, with 30.2%, 16.4 percent and 13.2 percent exposure, respectively (as of Sep 30, 2017). From an individual holdings perspective, Bank Central Asia, Astra International and Bank Rakyat Indonesia (Persero) are the top three holdings of the fund, with 8.6%, 7.0 percent and 6.9 percent allocation, respectively (as of November 6, 2017). The fund has returned 14.5 percent year to date and 7.1 percent in a year (as of November 6, 2017). IDX has a Zacks Rank #3 with a High risk outlook.

http://www.nasdaq.com/article/indonesias-gdp-growth-misses-expectations-etfs-in-focus-cm874274

 


Category: Indonesia

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