Indonesia ETF Soars On Commodity Strength, Astra Dividends

by on May 26, 2010 | ETFs Mentioned:

After slumping for weeks on concerns over Europe’s drag on growth and escalating tensions in Korea, global equity markets finally showed signs of life on Wednesday. Emerging markets were once again leading the way higher, although it was not China and India delivering the day’s biggest gains. With fears over the sustainability of China’s growth holding shares in check, Indonesian markets roared ahead to post their biggest one day gain in nearly two years; the Market Vectors Indonesia Index ETF (IDX) and the iShares MSCI Indonesia Investable Market Index Fund (EIDO) were both sharply higher on the day.

There are numerous drivers behind Indonesia’s mini-rally. The island nation received a boost during a visit from U.S. Secretary of Commerce Gary Locke, who met with representatives in order to promote clean energy projects. “Indonesia has the potential to be one of the biggest users and producers of renewable energy,” Locke told an American Chamber of Commerce luncheon. “Indonesia has tremendous potential to tap into hydropower, wind and solar resources.” Indonesia is also thought to hold more than 40% of the world’s geothermal energy potential, positioning it to be a major player in alternative energy industry as cash-strapped nations slash subsidies that have lured industry leaders.

Locke’s visit came ahead of a trip planned by Preisdent Obama, during which he is expected to sign a broad agreement with the country over a variety of issues “including trade, education, and the environment.” These trade agreements are widely expected to help boost relations between Indonesia and the U.S. and continue Indonesia’s growth trajectory (also see One Year Later: Top Ten Performing ETFs Since The Market Bottom).

Additionally, a variety of large Indonesian companies have recently reported good news, which helped to send many sectors sharply higher. Among the biggest gainers on Wednesday were PT Astra International, which soared by more than 10% on the Jakarta Exchange after announcing that it would be paying out almost half of its profits as dividends. PT Energi Mega Persada also jumped higher, by a record 52%, after announcing its intention to acquire new oil and gas blocks; along with higher commodity prices, this news helped to boost most metal and energy names as well (see Crude Oil ETFs In Focus After Recent Plunge).

These developments have had a dramatic impact on IDX and EIDO which were up 6.9% and 9.7%, respectively, in afternoon trading. This was due in part to the funds’ focus on PT Astra; both funds have the company as their single top holding, with EIDO allocating about 12% to the company and IDX almost 9%. EIDO has roughly one-fourth of its total assets in the energy and materials sectors while IDX gives these two sectors one-third of its total weighting.

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Disclosure: No positions at time of writing.