Market Vectors Indonesia ETF: Profitable, But Not for the Faint of Heart

Includes: GMF, IDX
by: Gary Gordon

The NBA's marketing pitch to viewers in 2009? This is where "amazing happens."

Well, then, imagine a scenario where you felt upbeat about the Indonesian economy. It's mid-January of 2009. And for the first time on a U.S. exchange, you have the opportunity to invest in the Market Vectors Indonesia Index ETF (NYSEARCA:IDX).

Sure, you get nervous when it drops from its inception price of 23.65 to 20.87 in 6 weeks. Yet what's an unrealized 12% loss in a frontier market when the S&P 500 SPDR Trust (NYSEARCA:SPY) has also lost 12% in the same time period?

So you hang in there. Then, lo and behold... IDX gains more than 100% in the 3 short months that follow!

Indonesia etf idx

Even after doubling in value, some believe that the Market Vectors Indonesia Index ETF (IDX) has plenty of room for further appreciation. Keep in mind, Indonesia it is one of very few countries that reported genuine economic growth in the first quarter of 2009.

(China and India also reported positive GDP... but they have to report positive GDP! Anything less than 5% economic growth in China is recessionary!)

Risks to Indonesia range from extreme currency fluctuations to an enormous dependency on the region we define as "Southeast Asia." Right now, emerging market currencies have gained strongly against the dollar and China is on resource-spending binge. So far, then, the environment has been favorable for investing.

Yet some may be a bit uneasy about the thin trading on Market Vectors Indonesia Index ETF (IDX). You may see days of 30,000 shares or less trading hands. A published P/E of approx 12 may have fit for 3/31/09, but we have little info on what that might be today. Moreover, nearly 1/3 of the holdings are in Indonesian banks. (If we can't evaluate the health of what's on the books at U.S. banks, how can we know what's happening in Jakarta?)

Market Vectors Indonesia Index ETF (IDX) has a 4% dividend that may offset some concerns about near-term valuations. But the bottom line? This one's not for the faint of heart. Expect IDX to travel a similar road as SPDR Emerging Southeast Asia (NYSEARCA:GMF).

Emerging se asia etf 2009
Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.