By The ETF Professor
When it comes to sovereign debt and the associated ratings, 2011 has been the year of the downgrade. Developed markets such as Greece, Italy and even the U.S. have seen the likes of Fitch Ratings, Moody's Investors Service and Standard & Poor's take the ax to their debt grades.
Well, not all the news is bad when it comes to global sovereign debt this year and those looking for good news should turn an eye to the emerging markets. Case in point: Fitch Ratings has restored Indonesia's investment-grade status 14 years after the Asian tiger lost it in the Asian financial crisis.
Indonesia's long term foreign and local currency debt was raised to BBB- from BB+. Jerome Booth from Ashmore Investment Management told the BBC that:
Indonesia, in terms of sovereign risk, is better than several Western European countries.
Not to mention that other analysts think Moody's and S&P will follow Fitch in upgrading Indonesia's credit ratings. Here are the ETFs with which to play that trend.
- Market Vectors Indonesia ETF (IDX): The Market Vectors Indonesia ETF was noted as one to watch next year, but the largest and oldest Indonesia ETF on the market may get a near-term bounce thanks to Fitch. Ned Davis Research said earlier this week that Indonesia is its top-rated Asian country. IDX's chart indicates a move above $30 is what it will take to have investors feeling cheery about Indonesia and this ETF. Also consider the iShares MSCI Indonesia Index Fund (EIDO).
- Global X FTSE ASEAN 40 ETF (ASEA): With all the calamity facing global equity markets this year, it's easy to lose sight of just how much the ASEAN region, of which Indonesia is a part, holds for investors in the coming. It's also easy to forget that ASEA is off to a nice rookie year start in terms of attracting assets with almost $22 million. Indonesia accounts for almost 20% of this ETF's weight.
- WisdomTree Asia Debt Local Debt Fund (ALD): This ETF is earning all kinds of praise. It's warranted though and with a credit upgrade, Indonesian bonds become a little more attractive. Good thing ALD devotes almost 11% of its weight to the country's bond issues.
- iShares JPMorgan USD Emerging Markets Bond ETF (EMB): For those that like their emerging markets bonds denominated in U.S. dollars, the iShares JPMorgan USD Emerging Markets Bond ETF is the way to go. It's also a sound Indonesia play with a 6.14% weight to the country.
- PowerShares DWA Emerging Markets Technical Leaders ETF (PIE): This PIE hasn't been too tasty this year and its technical leadership has been weak at best. Then again, that can be said of almost any emerging markets ETF on the market. PIE could be delicious on a move above $17 or the ETF's allocation of nearly 13% to Indonesia could prove to be a boost. In fact, we would argue PIE should allocate more to Indonesia and less to South Korea or Mexico.