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As high unemployment rates, slow growth and the fear of inflation continue to take their toll on developed nations like the US, Indonesia could offer investors an answer to their prayers.

The Asian nation, which consists of various islands and is the fourth most populous country in the world, is a member of both the G-20 and OPEC, but doesn’t export any oil, instead uses it to fuel its own economy. The fact that Indonesia is self-sufficient in crude oil makes it relatively immune to global price volatility driven by supply and demand imbalances of crude, which could force the cost of energy to spiral out of control and potentially hinder overall economic output. In addition to a vast supply of black gold, the South Asian nation is also rich in other natural resources which have enabled the nation to reap the benefits of tangible development, such as increased food production, and it's likely to continue to do so.

Other forces that make Indonesia appealing include its focus on tourism, its massive hydrocarbon industry and its relatively skilled and educated workforce. The abundance of educated skilled workers, combined with extremely low labor costs, make the Asian nation ideal for manufacturing and outsourcing, especially with the rapidly rising wages seen in China. To add icing to the cake, more than half of Indonesia’s population is under 30 years of age, which has been known to be a competitive advantage leading to higher productivity. Another benefit of a young workforce is immunity to the fiscal consequences of an aging population.

The last reason that Indonesia draws attention is that its economy is self driven by its own consumers, which is rare for a country of its development level. In fact, more than 60% of its GDP is generated by domestic consumer spending, meaning that the nation’s economic growth isn’t banking on the prosperity of other nations. As for the future, Indonesia’s population trends remain favorable and GDP is expected to grow around 6% for 2010 and potentially an additional 7% in 2011, reports the International Monetary Fund.

Some ways to play Indonesia include:

  • Market Vectors Indonesia Index ETF (IDX), which has 29 holdings and focuses on large-cap companies. IDX is up nearly 46% over the past year and closed at $75.08 on Tuesday.
  • iShares MSCI Indonesia Investable Market Index Fund (EIDO), which has 42 holdings and focuses on financials, energy and telecom as sectors. EIDO closed at $25.14 on Tuesday.

Although an opportunity seems to exist in the Southeast Asian nation, it is equally important to consider the risks, such as corruption and political instability, which are involved with investing in an emerging market. A good to way to protect against these risks is through the use of an exit strategy which identifies specific price points at which downward price pressure is likely.

According to the latest data, the price points are as follows: IDX at $73.36; EIDO at $23.87; These price points fluctuate on a daily basis and are reflective of market volatility.

Disclosure: No Positions

Source: 7 Reasons to Consider Indonesian ETFs