Published:
January 4, 2009
Market Vectors has just launched the
first fund specifically targeting
stocks in the island nation of
Indonesia, the Market
Vectors Indonesia Index ETF (NYSE: IDX).
For a modest expense ratio of around 0.70%, IDX will
track the performance of Indonesia's largest and most liquid
companies. To be eligible for the fund's underlying index,
prospective members must be actively traded and have market caps
in excess of $150 million.
At the outset, the index includes about two dozen
names, concentrated mostly in the financial, energy and telecom
sectors. This is common for emerging markets, nearly all of
which count national (often privatized) banks and phone
companies among their largest enterprises.
There are many compelling reasons for investing in this
narrowly focused fund.
For example, you may not know that Indonesia is the
largest economy in Southeast Asia, and the country has made
great strides since the Asian currency crisis erupted in the
late 1990s.
With the ouster of former dictator General Suharto over
a decade ago, democracy has taken root and paved the way for
prudent monetary policy and sweeping structural reform. Along
the way, corporate debt has been reduced, trade policies have
been relaxed, accounting standards have been tightened, and
deregulation has helped put dominant state-owned companies in
the hands of individual investors.
Today,
Indonesia has a population in excess of 240 million people,
making it the word's fourth largest country. And as is the case
here in the U.S., consumer spending accounts for over half of
GDP. But the country is also rich in natural resources and has
become an export powerhouse.
As a founding member of OPEC, Indonesia has vast
oil/gas reserves and ranks as the world's second-biggest
producer of LNG. Production has trailed off in recent years, but
minerals (gold, silver, nickel), agricultural products (palm
oil, coconuts, spices), and most importantly, manufactured goods
like rubber have helped pick up much of the slack.
In recent years, the country's stock exchange has
reeled off some impressive gains. In fact, Indonesian stocks
have been among the world's biggest winners, quintupling in
value from 2003 through the end of 2007.
As you might expect, those returns attracted quite a
bit of interest from foreign investors. Unfortunately, the
timing was bad for those who were late to the party, with many
arriving just in time to suffer through a painful -59%
correction last year.
At the end of 2007, the combined market cap of every
publicly traded company in Indonesia stood at $211 billion --
about the same as Wal-Mart (NYSE: WMT).
That means there is still plenty of untapped potential
in this fast-growing nation, but also an equal amount of risk.
Given the current state of foreign markets, I suspect it will
take a while for this fund to catch on -- trading volume is
still next to nothing.
However, once growth in India and China (two major
trading partners) picks back up, I expect Indonesia's export
activities to see a sharp rebound. If that happens, then IDX
should enjoy a strong upward surge.
Nathan Slaughter
Editor
The ETF Authority
About
The ETF Authority
The mission of The ETF Authority
is to help our readers identify today's most profitable ETFs and closed-end
funds. (Learn
More)
About Nathan Slaughter
Nathan Slaughter has developed a long and successful track
record over the years by investing in both exchange-traded funds (ETFs) and
deeply discounted value securities. When it comes to ETFs, Nathan has
created a proprietary ranking system that helps him zero in on today's most
promising funds.
Nathan's previous experience includes a long tenure at
AXA/Equitable Advisors, where he provided comprehensive investment advisory
services to small businesses and high net-worth clients. He also honed his
research skills at Morgan Keegan, where he performed asset allocation,
retirement planning, and consultative portfolio management services.
Several years ago Nathan switched gears and decided to devote
his time exclusively to financial analysis and writing. He has since published
hundreds of articles for a variety of prominent online and print publications,
and he now writes exclusively for StreetAuthority.com.
Nathan's educational background includes NASD series 6, 7, 63,
& 65 certifications, as well as a degree in Finance/Investment Management.
He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley.
To learn more about Nathan Slaughter's premium investing newsletter -- The
ETF Authority -- please
visit
this link.
|
