Mammoth Upside Potential with the
First Indonesian ETF
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Wednesday,
February 4, 2009
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Volume
3, Issue #8
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Mammoth Upside Potential with
the First Indonesian ETF |
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-- By
Nathan Slaughter, Editor,
The
ETF Authority |
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With 240
million people, Indonesia is the word's fourth most populous
country. And as is the case here in the U.S., consumer spending
accounts for over half of GDP. The country is also rich in
natural resources and has become an export powerhouse.
In
2007, the combined market cap of every publicly traded company
in Indonesia stood at $211 billion -- about the same as Wal-Mart
(NYSE: WMT). This means there is tons of untapped potential in
this fast-growing nation.
(Full Story Below) |
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Mammoth Upside Potential with the First Indonesian ETF
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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.
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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
TopStockAnalysts
http://www.TopStockAnalysts.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
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