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Indonesia funds’ vulnerability

Post-election instability and trade issues weigh on Indonesian share prices, but top funds keep longer-term gains.

The MSCI Indonesia index plunged 11.25% for the year to 22 May, the day after President Joko Widodo was declared the winner in the 17 April election vote. His rival, Prabowo Subianto, a former army general,  contested the result even before it was announced, and violent demonstrations erupted in Jakarta.

The riots are a setback for the world’s fourth most populous country and Southeast’s biggest economy, which had seemed to have transitioned successfully to democracy since abandoning military dictatorship two decades ago.  Investors have been encouraged by annual GDP growth rates of over 5% and have highlighted the potential of its growing consumer class.

Share prices have bounced back this week, so the MSCI Indonesia year-to-date performance of -2.7% is no longer the worst among Southeast Asian countries – the MSCI Malaysia index is down -5.0%, ac cording to FE Analytic data.

Meanwhile, Indonesia’s longer-term performance is about average among its regional peers. The three-year cumulative return of the index is 23.36%, compared with Vietnam (50.64%) at the top end and the Philippines (-3.2%) at the bottom. The Thailand and Singapore indices have also performed better, but the Malaysia index has done worse.

However, Indonesia singe-country funds have failed to match the performance of the index. Hefty annual fees of around 2% have likely dragged on performance, but not enough to account for the single-digit returns of three of the funds managed by Parvest, Eastspring and Allianz.

The better performing funds – run by JP Morgan and Fidelity – have tended to take fewer bets away from index  – although when they have, they have produced negative alpha. Investor outflows in April might also have contributed to the fund sector’s weakness if the managers were forced to sell holdings at distressed levels.

Political instability is likely to continue, according to media reports. Investors’ enthusiasm could also be dampened by the country’s deteriorating trade balance, a further escalation of the US-China tariff conflict and the weighting increase of China shares in MSCI indices this week.


Comparison of Indonesia single-country funds

Fund

3-year cumulative return %

Annualised return % Alpha Annualised volatility % Sharpe ratio

OCF %

JPM Indonesia Equity

17.77

5.08 -1.23 17.48 0.09

1.80

Fidelity Indonesia

15.41

4.24 -1.90 17.79 0.04

1.95

MSCI Indonesia

21.38

6.55 19.07 0.16

Eastspring Indonesia Equity

6.87

1.47 -5.41 19.46 0.00

2.18

Parvest Equity Indonesia Classic

0.68

0.18 -5.78 17.22 -0.01

2.22

Source: FE Analytics. Data in US dollars: 27 May 2016 – 27 May 2019

Indonesia single country funds vs MSCI Indonesia index

Source: FE Analytics. Three-year performance in US dollars.

Part of the Bonhill Group.