Indonesia's Inflation Eases: ETFs In Focus

Indonesia’s annual inflation rate slowed in July, per the Statistics bureau. This was primarily attributed to normalizing demand post the Eid al-Fitr holidays.

Consumer prices grew 3.88% in July compared with a 4.37% growth in June. It grew 0.22% in July on a monthly basis. Bank Indonesia targets an annual headline inflation rate in the range of 3–5% for 2017. Inflation is expected to be in the middle of the central bank’s target range.

Core inflation, which excludes volatile items like food prices, grew 3.05% in July compared with 3.13% in June.

Moreover, manufacturing Purchasing Managers Index (PMI) declined to 48.6 in July compared with 49.5 in June, owing to reduced demand.

However, business confidence in Southeast Asia’s largest economy slowed to 103.42 in the first quarter of 2017 compared with 106.7 in the fourth quarter of 2016. Moreover, consumer confidence slowed to 122.4 in June compared with 125.9 in May. However, it still remains high on a fundamental level. A reading above 100 in the survey indicates consumers are optimistic.

The central bank of Indonesia cut its key interest rate six times last year. The economy grew 5.01% year over year in the first quarter of 2017 compared with a 4.94% growth in the fourth quarter of 2016.

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

iShares MSCI Indonesia ETF EIDO

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 $518 million and charges a fee of 63 basis points a year. From a sector look, Financials, Telecommunication Services and Consumer Discretionary are the top three allocations of the fund, with 32.59%, 15.10% and 14.41% exposure, respectively (as of July 31, 2017). From an individual holdings perspective, Telekomunikasi Indonesia, Bank Central Asia and Bank Rakyat Indonesia (Persero) are the top three holdings of the fund, with 13.40%, 10.46% and 9.30% allocation, respectively (as of July 31, 2017). The fund has returned 11.15% year to date and 2.05% in the last one year (as of August 1, 2017). EIDO currently has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

VanEck Vectors Indonesia Index ETF (AX:IDX)

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

It has AUM of $70.7 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 27.3%, 18.3% and 14.6% exposure, respectively (as of June 30, 2017). From an individual holdings perspective, Telekomunikasi Indonesia, Bank Central Asia and Astra International are the top three holdings of the fund, with 8.14%, 8.04% and 6.91% allocation, respectively (as of June 30, 2017). The fund has returned 12.44% year to date and 1.66% in the last one year (as of August 1, 2017). IDX currently has a Zacks Rank #2 with a High risk outlook.

Let us now compare the performance of the two funds to a broad Southeast Asia based ETF, ASEA.

Global X Southeast Asia ETF ASEA

This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, Singapore, Indonesia, Malaysia, Thailand, and the Philippines. It is appropriate for investors looking for a diversified exposure to South East Asia (read: Bank Indonesia Leaves Rates Unchanged: ETFs in Focus).

ASEA is less popular with AUM of $12.32 million and charges a fee of 65 basis points a year. From a geographical perspective, the fund has 30.45% exposure to Singapore, 22.29% to Malaysia, 21.15% to Thailand, 19.67% to Indonesia and 6.44% to Philippines (as of March 31, 2017). Financials, Telecommunication Services and Industrials are the top three sectors of the fund, with 45.92%, 14.94% and 8.12% allocation, respectively (as of June 30, 2017. DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with 7.65%, 7.26% and 5.96% allocation, respectively (as of August 1, 2017). The fund has gained 10.42% in the last one year and 20.17% year to date (as of August 1, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook.

Below is a chart comparing the year-to-date performance of the three funds.

Source: Yahoo (NASDAQ:AABA) Finance

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