REFILE-U.S. investors bail out of Indonesian ETFs

Tue Aug 27, 2013 11:38pm EDT

By Vikram Subhedar

HONG KONG Aug 28 (Reuters) - Indonesian exchange traded funds bore the brunt of heavy redemptions from U.S. investors on Tuesday as the selloff in deficit-riddled emerging markets deepened.

Fears of a U.S.-led military strike against Syria sparked a slide on Wall Street that exacerbated the weakness in South East Asian stocks and currencies on Wednesday with Indonesian stocks now on track to become Asia's worst performing share market this year.

Efforts by Indonesian authorities to stem outflows, spurred by an imminent reduction in U.S. monetary stimulus, have failed to reverse the tide as a crippling current-account shortfall, slowing economic growth and high inflation have darkened the outlook considerably.

The rupiah has dropped 11.7 percent so far this year against the dollar, doing only slightly better than the Indian rupee which has also been hammered on concerns about a turn in Fed policy and capital outflows. India is facing similar issues of a bloated current account deficit and weak growth chilling investor sentiment.

For Indonesia, a darling of foreign investors until recently, the latest signs are disheartening. U.S. retail investors also appear to be throwing in the towel on Southeast Asia's biggest economy.

The Market Vectors Indonesia ETF, managed by emerging market-focused index investor Van Eck Global, slumped 7.6 percent in U.S. trading on Tuesday and closed overnight at the deepest discount to net asset value since it listed in January 2009.

An ETF focused on Indonesian small-caps fell 8.6 percent.

The iShares MSCI Indonesia ETF fell 8.4 percent. Tuesday's slide means the ETF, an investor favourite till as late as April this year, has now lost a third of its value over the past three months.

The MSCI Emerging Markets index meanwhile is down a little over 8 percent over the same period.

Exchange traded funds have became popular in recent years particularly among Western retail investors who ordinarily have limited direct access to emerging markets such as Indonesia. ETFs also provide exposure to these markets at lower costs than traditional mutual funds.

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