Indonesia ETFs Rise Amid Reports of Singapore Travel Bubble

Singapore represented nearly 30% of Indonesia's Q2 FDI

Indonesian stocks traded at their highest level in more than five months Tuesday after news surfaced that the Southeast Asian nation plans to discuss a travel bubble with regional neighbor Singapore.

Key Takeaways

  • Singapore and Indonesia are considering a "reciprocal green lane" to allow essential travel to gradually resume.
  • The iShares MSCI Indonesia ETF (EIDO) closed above the psychological $20 level for the first time since March.
  • The VanEck Vectors Indonesia Index ETF (IDX) has seen volume increase substantially since July 20.

Singapore's Ministry of Foreign Affairs (MFA) said that it plans to work closely with the Indonesian government to strengthen public health cooperation, foster cross-border investment, deepen financial ties, and facilitate safe travel. "Given the strong business links between Singapore and Indonesia, the two foreign ministers tasked the officials to begin discussions on a reciprocal green lane to allow for essential travel to gradually resume in a manner that would safeguard public health and safety in both countries," read the MFA statement cited by Singaporean news channel CNA.

The city-state invested $6.6 billion in Indonesia during the second quarter, representing nearly 30% of the country's total foreign direct investment (FDI). Traders can gain exposure to Indonesian stocks through the two exchange-traded funds (ETFs) outlined below. Let's review the metrics of each fund and point out possible trading ideas using technical analysis.

Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires business assets in a foreign company.

iShares MSCI Indonesia ETF (EIDO)

The iShares MSCI Indonesia ETF aims to provide a similar return to the MSCI Indonesia IMI 25/50 Index – a benchmark comprising large-, mid-, and small-cap Indonesian companies. The ETF's two largest holdings – PT Bank Central Asia Tbk (PBCRY) and PT Bank Rakyat Indonesia (Persero) Tbk (BKRKF) – carry a cumulative portfolio weighting of around 30%. Trading wise, a daily turnover of 723,000 shares coupled with tight spreads minimizes slippage costs. EIDO has net assets of $313.94 million, yields 1.23%, and is up 26.72% since late May as of Aug. 26, 2020.

EIDO shares broke through a period of three-month consolidation to finish Tuesday's session above the psychological $20 level for the first time since early March. Those who anticipate further upside continuation should look at booking profits near $23.50, where the price is likely to encounter resistance from the October 2019 swing low. Protect trading capital with a stop-loss order placed somewhere below the 50-day simple moving average (SMA).

Consolidation is a technical analysis term referring to security prices oscillating within a corridor and is generally interpreted as market indecisiveness.

Chart depicting the share price of the iShares MSCI Indonesia ETF (EIDO)

VanEck Vectors Indonesia Index ETF (IDX)

With assets under management (AUM) of $28.35 million and a 0.57% expense ratio, the VanEck Vectors Indonesia Index ETF tracks the price and yield performance of the MVIS Indonesia Index. Financials and consumer non-cyclicals command the top sector weightings at 28.85% and 19.68%, respectively. Nearly 100,000 shares exchange hands each day on a 0.40% average spread to provide decent liquidity. As of Aug. 26, 2020, IDX issues an attractive 2.83% dividend yield and has gained 25% over the past three months.

The ETF climbed 2.49% Tuesday, closing above significant resistance at $18, where price finds headwinds from the June swing high and 200-day SMA. Interestingly, volume in the fund has increased substantially since July 20, indicating higher levels of trader participation. Those who buy here should consider placing a stop order beneath the August low at $17.07 and target a move to the lower trendline of a previous trading range at $21.

Swing high refers to a peak reached by an indicator or a security's price before a decline. A swing high forms when the high reached is greater than a given number of highs positioned around it.

Chart depicting the share price of the VanEck Vectors Indonesia Index ETF (IDX)

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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