Consecutive earthquakes shook the Southeast Asian nation of Indonesia on Wednesday, causing massive damage and more than 500 deaths. A 7.6-magnitude earthquake originated in the sea off Sumatra Island, and apparently bore down on Padang town. Early Thursday morning, another earthquake hit the same region, causing additional damage but no casualties. The first earthquake came a day after a powerful earthquake off the island of Samoa spawned a tsunami that killed more than 100 people. Indonesia is a chain of more than 17,000 islands, complicating rescue efforts and making the country particularly vulnerable to tsunami damage.
The extent of the damage caused by the series of natural disasters may not be known for some time. Rescue workers continue to work to free victims from more than 500 collapsed buildings, which include hotels, schools, hospitals, and a mall. The death toll is expected to rise considerably.
Despite the massive destruction to the country, Indonesian equity markets have held their ground, even adding modest gains in recent days. For U.S. investors, perhaps the best option for investing in Indonesia is the Market Vectors Indonesia Index ETF (IDX), which tracks the performance of a benchmark composed of stocks of about 30 Indonesian companies. IDX is heavy in large cap and mid cap companies, and has its heaviest allocations in the financial services and materials sectors.
In early trading on Thursday, IDX had gained about 1%, putting the ETF up nearly 3.5% on the week. According to our ETF Screener, IDX is the best performing non-leveraged ETF in 2009, gaining more than 150% since its inception in January.
The surge in Indonesian equities (and Indonesian ETFs) in 2009 is likely the result of fiscal and monetary policies that have been implemented over the last decade. Following the economic crisis in Southeast Asia in the late 1990s, Indonesia slashed government debt, reined in inflation, and bolstered its international reserves. Indonesia and China were the only two Asian economies to escape a severe recession over the last two years, and Indonesia’s GDP is expected to grow by about 4.3% in 2009, a remarkable accomplishment is a year when most economies saw contraction.
Investments in Indonesia do of course come with significant risk. The oil and gas sector accounts for a large portion of Indonesia’s economy, and the country is rich in both minerals and agricultural commodities. As such, the strength of the economy is somewhat dependent on commodity prices. And as events in recent weeks have shown, Indonesia is one of the most seismically-active regions in the world, subject to damage caused by unexpected natural disasters.
Disclosure: No positions at time of writing.