October 15, 2010 - Indonesia is On Fire

Featured Trades: (INDONESIA), (IDX), (EIDO)
Market Vectors Indonesia Index ETF
iShares MSCI Indonesia Investable Market Index ETF

3) Indonesia is On Fire. Who said quantitative easing wouldn't work? The only problem is that you have to speak Bahasa, eat nasi goreng, and live South of the equator, to take full advantage of Uncle Ben's munificence. Since the rumblings about a global, synchronized QEII began in September, $2 billion a day has been flooding into emerging markets, and Indonesia has been at the top of the list.

Some of the happiest days of my life were spent in this bucolic tropical backwater during the seventies. My investment in the ETF (IDX) on launch day has made me happier still, soaring by 360% since inception (click here for the call). A rupiah that has been steadily appreciating against the dollar has added a nice double leveraged effect to the upside.

Despite the triple digit return, it could still be early days for the world's largest Muslim country. Some $9 billion in foreign capital has poured into the local rupiah denominated bond market, and a further $2.5 billion has been plopped down in the stock market. Multinationals have made a further $8 billion in direct investments, a capital flow you know I always love to follow. The prices for its largest commodity and energy exports have been rising.

The government has been targeting almost Chinese levels of GDP growth of 7%-8%, and private analysts say than that 6.5% will be achieved this year and next. Stocks are not cheap at a 13.5 multiple, but how much should you pay for earnings that are growing 25% a year? Next month, President Obama will visit the land of his childhood to highlight stable relations between the two countries, to help sew up some trade deals, and no doubt, to visit his former pet monkey

IDX has had the field to itself until now, as local Indonesian stocks are not easy to buy for US based online traders. Then in May, BlackRock launched its own entrant in the field (EIDO), which has basically since gone straight up. While Indonesia is no longer as cheap as it once was, it still deserves a place in every emerging market portfolio. This could be the next China.

Not a Bad Place to Park Some Cash

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.