iShares MSCI Indonesia ETF declines on unexpected parliamentary election results

By: Anton Aleksandrov
Anton Aleksandrov
Anton is a freshly graduated economist from the States with passion for the world of finance. He is one… read more.
on Apr 11, 2014
Updated: Apr 9, 2020 Friday, April 11: The iShares MSCI Indonesia ETF (NYSEArca:EIDO), Indonesia’s biggest exchange traded fund, has declined over five percent in the past two days after early results of the parliamentary election showed the opposition party, favoured by investors, didn’t receive enough support to run for the presidency without forming a coalition. EIDO yesterday closed $1.01 or 3.55 percent lower at $27.43.

According to estimates from the Lingkaran Survei Indonesia, Joko Widodo’s Indonesian Democratic Party of Struggle (PDI-P) won 19.7 percent of the vote, below the 25 percent threshold needed to nominate a presidential candidate. Widodo is favoured by investors, who believe that an administration run by him would boost spending on infrastructure and public welfare (Indonesian ETFs rally following Joko Widodo’s presidential nomination).“The market will be disappointed [by the results],” Harry Su, head of research at PT Bahana Securities, said as quoted by Bloomberg. “We would recommend clients to take profit.”

UBS analyst Joshua Tanja wrote yesterday in a research note that “the upcoming government will need an even more effective leader to communicate and negotiate with the more fractious Parliament.” However, he recommends investors not to buy on the election dip due to expectations of disappointing first quarter earnings, which could drive the market even lower. “Bank Q114 [first quarter of 2014] results, however, aren’t likely to be as strong as before, given the credit cycle and rising cost of funds. Therefore, we conclude Q114 results won’t be a market positive event,” the UBS report states.

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Samuel Le Cornu, portfolio manager at Macquarie Investment Management, said he had an underweight position in Indonesian shares after the rise in valuations. “Looking at Indonesia as a whole, we don’t think it is cheap…The rally at the moment is all sentiment driven, not fundamental buyers,” commented Le Cornu.

**iShares MSCI Indonesia ETF (NYSEArca:EIDO)**
EIDO has totals assets under management of $395.5 million (₤235.6 million) and a gross expense ratio of 0.62 percent. As of the end of March the ETF had a year-to-date return of 22.11 percent, one of the best performing emerging market funds. Stocks from the financial sector have the biggest weight in the ETF, followed by the consumer sector. The top 10 holdings account for more than 55 percent of the total assets and include Astra International (11.49 percent), Bank Central Asia (9.30 percent), Bank Rakyat Indonesia (7.78 percent), Telekomunikasi Indonesia (7.28 percent) and Bank Mandiri Persero (6.59 percent).
**As of 08.00 BST buy iShares MSCI Indonesia ETF at $27.44.**
**As of 08.00 BST sell iShares MSCI Indonesia ETF at $27.42**

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