A Rising Global Star: Choosing Between the Two Indonesia ETFs

Includes: EIDO, IDX
by: Tom Lydon

Indonesia is a prime example of an emerging market that is going through a rapid industrialization, which has benefited anyone who has invested in the area. You may also gain exposure to the country through two ETFs, which we’ll compare below.

In the last five years, Indonesia has worked hard to reform and improve business and investment conditions. It has reaped rewards in the form of growth: 5% in 2009 and 6% this year. The growth rate between 2011 and 2015 could reach 7% to 8%.

The Asian Development Bank projects the Indonesia economy to expand by 6.1% for 2010 and by 6.3% in 2011. The President is doing the forecasts one better, estimating 6.6% growth on average through 2014.

Indonesia’s economy hosts a large working-class population, an expanding manufacturing base, moderate labor costs, healthy financial sector, large reserves of natural resources and a relatively stable political environment. The country is also in the midst of an export boom, aided by reforms and trade agreements with Asian countries.

Roben Farzad in Bloomberg BusinessWeek reports that Russia may no longer deserve a spot in the “BRIC” countries; there are suggestions to drop the “R” and add another “I”; for Indonesia. Indonesia has more going for it than Russia and has the potential to become the key global player. William Edwards of EGS LLC, they do not work in Russia for their U.S. clients they take international because there is “no rule of law; no brand/IP protection from the government or local partner. The foreign company will not win in Russian courts; money source challenges; declining middle class consumer base; and net of oil related investment, the annual GDP growth is mid range.” He does work in Indonesia for his clients though.

Indonesia is clearly a market worthy of some attention. There are two ETFs to directly play the moves of this exciting market:

  • Market Vectors Indonesia Index ETF (NYSEArca: IDX). Expense ratio of 0.68%.

Sector Allocations: Financials 28.59%, Consumer Discretionary 13.7%, Consumer Staples 12.45%, Energy 11.91%, Telecom Services 11.74%, Materials 10.52%, Industrials 5.83%, Utilities 4.68% and S-T Securities 0.05%.

  • iShares MSCI Indonesia (NYSEArca: EIDO). Expense ratio of 0.65%.

Sector Allocations: Financials 25%, Materials 14.7%, Telecom Services 12%, Consumer Discretionary 12.3%, Energy 11.6%, Consumer Staples 10.7%, Utilities 5%, Industrial Goods & Services 4.2% and Pharmaceuticals 1.8%.

Both funds have their heaviest weighting in financials, while IDX has more of a consumer focus, which could be taken as a more direct play on the domestic economy’s growth. EIDO also has a fair allocation to the consumer sector, and their expense ratios are nearly identical.

Max Chen contributed to this article.

Disclosure: None