A Look At S.E. Asia ETFs

Southeast Asia, which was worst hit this summer on tapering worries, is now regaining investor confidence as global economic conditions revive and geopolitical tensions ease.

Additionally, nomination of Janet Yellen as the Fed’s next chairperson suggests has fears of the central bank curtailing its monetary easing policies. This has resulted in a sharp rally in the Southeast Asian markets.

This surge was broad-based, mainly led by a reversal in the beaten-down Indonesian and Thai stocks (read, Can Anything Stop These Soaring Southeast Asia ETFs?).

Indonesia
The Indonesian stock market and its currency (the rupiah) have rebounded well from their lows. In fact, funds tracking the Indonesian economy have been strong performers of late, leading the emerging market surge.

Currently, there are three choices for investors seeking to make a play on Indonesian securities -- the Market Vectors Indonesia ETF (IDX), iShares MSCI Indonesia Investable Market Index Fund (EIDO) and Market Vectors Indonesia Small-Cap ETF (IDXJ). The trio have a decent ETF Rank of 3 or ‘Hold’ rating (see, all the Emerging Asia Pacific ETFs here).

The Bank of Indonesia surprisingly raised its benchmark rate by a quarter percentage point to 7.25%, strengthening the rupiah to some extent on that day. This hike followed the fifty basis point increase announced in late August and represented the second hike in two weeks (read: Indonesia ETFs Surge on Surprise Rate Hike).

Many experts believe that rate hikes would boost confidence and even signal that the worst might be over for this emerging market, especially if these new measures produce results. However, the country’s central bank lowered its GDP forecast slightly to 5.5-5.9% this year from 5.8-6.2% on declining consumer spending, the lowest growth for the economy since 2009.

This suggests that the recent rebound could not be sustained in the coming months and the Indonesian economy, the biggest in Southeast Asia, might continue to struggle with slowing growth, rising inflation and widening current account deficits (read, Can Indonesia ETFs Bounceback?).

Thailand
Thai stocks and its currency have also recovered quite well lately on the hopes of continued U.S. bond buying that would help to ease growing domestic economic pressure. The only fund targeting the nation – iShares MSCI Thailand Capped ETF (THD) – is up 1.4% in the past four weeks.

The Thailand ETF currently has a Zacks Rank of 2 or ‘Buy’ rating, indicating that the product would outperform over the one-year period.

According to a recent report from the bank of Thailand, the second most populous Southeast Asian economy has strong fundamentals when compared to other South East Asian neighbors. The nation will also be able to protect itself from the adverse effect of tapering as the bank continues to review its interest rate and exchange rate policies from time to time.

This is particularly true given the low unemployment rate of 0.6%, inflation of just 0.75% and substantial foreign reserves. Nevertheless, worries over rising household debt and high credit growth are looming large across the economy that might narrow the prospect of reducing future interest rates (read, Is the Thailand ETF in Trouble?).

Like many other developing and emerging countries, the Thailand economy is also feeling the brunt of weak exports, sluggish domestic demand, struggling currency (the baht) and falling consumer confidence. The bank projects the economy to grow to 4.2% this year, down from its previous forecast of 5.1%.

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