Indonesia-related exchange traded funds stumbled this year, with the economy expanding at its slowest since the global recession. Nevertheless, Moody's Investor Service remains confident in the country's outlook.
The iShares MSCI Indonesia ETF (NYSEARCA:EIDO) and Market Vectors Indonesia Index ETF (NYSEARCA:IDX) are both down 23.3% year-to-date as the weakening currency and higher interest rates pressure Indonesia stocks.
However, Indonesia shows resilient growth, low debt burden, favorable maturity profile, and high debt affordability, which will all help shield the economy against refinancing risks and mitigate the negative effects of higher rates and currency depreciation, according to Moody's.
Additionally, Indonesia has contained its budget deficits at low levels and has been steadily reducing its debt burden as a share of GDP over the past decade, allowing for more fiscal wiggle room to counteract economic problems.
Moody's is maintaining the country's Baa3 rating - the lowest level to still be considered investment grade. The ratings agency points to low revenue mobilization and large subsidy spending in the budget as impediments to Indonesia's sovereign credit rating.
Indonesia has been tackling with external payment positions, which has led to a depreciating rupiah currency, and the widening current account and volatile capital flows have made the country susceptible to external financial shocks, like U.S. tapering. Moody's, though, points out that Indonesia's exchange reserves will cushion any fallout.