How to invest in Indonesia with ETFs

Indonesia, one of the most populous nations in the world and among the largest in terms of territorial extension, offers investors a fascinating economic scenario. Located in the archipelago of Southeast Asia and Oceania, bordering countries such as Papua New Guinea, East Timor, and Malaysia, Indonesia is a complex and diversified reality, but it is above all a growing economic opportunity.

In recent years, Indonesia has enjoyed political stability that has attracted a significant amount of investment, contributing to notable economic growth. Its gross domestic product and GDP per capita have recorded rapid increases, while the inflation rate has remained below 4%, maintaining a stable and investment-friendly economic environment. Additionally, the country has achieved a trade surplus in recent years and has seen a reduction in unemployment, which has cemented its status as an economically attractive market. In this article, we will explore the investment opportunities in Indonesia through the best ETFs available, allowing investors to capitalize on this growing economy in an efficient and targeted manner.

1. Lyxor MSCI Indonesia UCITS ETF

The Lyxor MSCI Indonesia UCITS ETF - Acc is an investment product that deserves in-depth analysis. This ETF allows investors to participate in the performance of the MSCI Indonesia index, which represents large and mid-cap Indonesian companies. Here are some key points to consider:

The Lyxor MSCI Indonesia UCITS ETF - Acc is managed with assets of EUR 43 million. However, despite its size, this ETF has proven to offer exposure to large and mid-cap Indonesian companies. With an annual management rate (TER) of 0.45%, this ETF is positioned as a cost-effective choice compared to other investment options that track the MSCI Indonesia index. A low TER reduces operating costs for investors over time, which can translate into a positive impact on returns.

This ETF follows a long position strategy, replicating in a synthetic way the performance of the underlying index through a swap. This means that the fund seeks to achieve gains in line with the index without resorting to short-selling techniques or derivative instruments.

The ETF is denominated in EUR, which is important to consider for investors who want to manage currency risk associated with currency fluctuations. The ETF’s annual volatility was recorded at 14.58% with a maximum 1-year drawdown of -13.30%, a level that highlights the high price variation in the short term. Investors should consider whether such volatility aligns with their objectives and risk tolerance.

The product has shown positive returns over the years, with an increase of +1.95% YTD and notable three- and five-year performance. However, it should be noted that it has also undergone significant fluctuations, as indicated by the change of -5.22% in the previous three months.

2.The Xtrackers MSCI Indonesia Swap UCITS ETF

The Xtrackers MSCI Indonesia Swap UCITS ETF 1C is a product that requires detailed analysis, especially considering the key elements that characterize it:

With assets under management of approximately EUR 45 million, this ETF can be considered relatively small in size. The annual management rate (TER) of the ETF is 0.65%, which represents a rather high operating cost compared to other similar products.

The ETF follows a long position strategy, replicating the performance of the underlying index through a synthetic swap. The ETF is denominated in USD, which may be something to take into consideration for investors who wish to manage currency risk associated with currency fluctuations and does not offer any currency hedging, meaning that investors are exposed to currency risk if the benchmark index is denominated in a currency other than ’USD.

The 1-year volatility was recorded at 14.07%, indicating some variability in prices in the short term. Investors should carefully evaluate this volatility concerning their objectives and risk tolerance.

The ETF has shown positive returns over the years, with a YTD return of 1.39% and notable three- and five-year performance. However, it is important to note that it has also undergone significant fluctuations, as evidenced by the decline of -5.27% over the previous three months.

3. HSBC MSCI Indonesia UCITS ETF USD

This ETF tracks the MSCI Indonesia index, which offers representation of large and mid-cap Indonesian companies. The MSCI Indonesia Index is the underlying index.

With a TER of 0.50% per annum, the ETF offers a competitive expense ratio compared to similar products. This is important because lower costs can have a positive impact on investors’ overall returns in the long term.

The ETF adopts a long-only strategy, meaning it seeks to replicate the performance of the underlying index without using short sales or derivatives to bet against the market and is denominated in USD, like its predecessor. The ETF does not offer currency hedging, which means investors are exposed to currency risk if the benchmark index is denominated in a currency other than USD.

The ETF’s 1-year volatility is recorded at 14.03%, a medium to high level. Investors should consider this volatility in light of their objectives and risk tolerance. The product has shown positive returns over the years, with a YTD return of 1.09% and notable three- and five-year performance.

This ETF pays dividends to investors on a semi-annual basis, providing a potential income stream for those seeking periodic returns from their investment.

In summary, the HSBC MSCI Indonesia UCITS ETF USD represents a solid option for investors looking to gain exposure to the Indonesian large- and mid-cap market. Its low TER, well-regulated ETF structure, and positive historical performance are elements that could attract investors’ attention. However, evaluating volatility, currency risk, and your personal risk profile is crucial before making an investment decision. As always, thorough research is essential to making an informed choice.

Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.

Original article published on Money.it Italy 2023-12-16 08:01:00. Original title: Come investire in Indonesia con gli ETF