Shares MSCI Indonesia ETF: We Should Not Forget about Geographical Diversification

Despite a weak commodity and global trade environment, Indonesia has maintained one of the highest economic growth rates in Southeast Asia. Indonesia's economy is expected to grow strongly by more than 5% this year, beating China’s and, probably, India’s growth, boosted by domestic consumption and investment.

In 2022, the Indonesian economy grew by 5.31%, posting a sharp jump from the 3.7% growth of the previous year of its ASEAN chairmanship. The country's GDP is expected to grow between 4.5% and 5.3% in 2023. Furthermore, GDP growth is expected to accelerate to 4.7–5.5% in 2024, according to Bank Indonesia data. Domestic consumption has proven to be a key growth engine as tourism rebounds amid China's reopening.

Broad investment vehicle of choice to obtain exposure to Indonesian stocks and their growth stories are a couple of the namesake ETFs. The U.S.-listed iShares MSCI Indonesia ETF (EIDO) tracks, fees and expenses deducted, the performance of the market cap-weighted MSCI Indonesia IMI 25/50 Index, which comprises ~99% of the Indonesian free float-adjusted market cap. The ETF has seen a significant increase in its net asset base at $506 million (up from ~$449 million prior) and maintains a highly competitive ~0.6% expense ratio despite being one of the few single-country Indonesian options available to the U.S. and global investors.

Although the iShares MSCI Indonesia ETF has outperformed the broader market so far this year, valuations remain modest compared to underlying growth potential. EIDO has risen by a solid +4.8% this year, outpacing the rest of Southeast Asian funds and indices. Once again, the biggest driver of its near-term outlook is strong Indonesian domestic consumption.