Indonesia ETFs Ride The Growth Wave

Includes: EIDO, IDX, IDXJ
by: Tom Lydon

Indonesia focused exchange traded funds are making up for lost time in 2012 with double-digit moves so far this year. There are a number of economic factors that support this reversal for Indonesia's stock market.

"Over the past eight years, Indonesia has enjoyed steady mid-single-digit gross domestic product growth rates, driven primarily by increases in domestic consumption, which accounts for about two thirds of GDP. During this time, Indonesia's political and economic climate has been stable. President Yudhoyono has successfully implemented tax, customs, and capital market reforms," Patricia Oey wrote for Morningstar.

Three ETFs have managed double-digit gains this year, the Market Vectors Indonesia ETF (NYSEARCA:IDX), iShares MSCI Indonesia Index (NYSEARCA:EIDO) and the Market Vectors Indonesia Small Cap ETF (NYSEARCA:IDXJ). IDX has gained 12.35% in 2013, compared to the MSCI Emerging Market Index that is down 1.35% over the same time period, reports Kenneth Rapoza for Forbes.

Indonesia's economy is consumer-driven, and recent policy measures have helped to add to the domestic recovery. The country's currency, the rupiah, has remained stable against the U.S. dollar, which helps U.S. investors recover returns when the currency conversion takes place, reports Zacks.

Another factor that support Indo's growth outlook is the growing middle class that is expected to double by 2020.By this year, more than half the population is expected to be living a middle class lifestyle. Furthermore, the middle class is expected to be evenly dispersed, and more families will be considered affluent. Financial security is helping this trend, with about 31% of locals feeling secure in their ability to provide.

There are still measures that need to be addressed further, such as a poor legal system, corruption and inadequate infrastructure to support more growth. Also, terrorism remains a daily threat in the is region of the world, reports Oey.

Market Vectors Indonesia ETF

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.