Putting Another "I" in BRIC

04/06/2010 2:36 pm EST

Focus: ETFS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Nicholas A. Vardy, editor of The Global Guru, recommends an ETF that puts one of Asia's most dynamic markets into a single security.

As the world's largest Muslim nation with a population of almost 248 million, Indonesia is the fourth-most populous country in the world after China, India, and the United States. Already among the top 20 economies in the world in terms of GDP, the Indonesian economy grew at more than 4% in 2009.

Much of the credit for the recent rise goes to Indonesia's President Susilo Bambang Yudhoyono, known better by his initials SBY, a former army general who last year won a landslide re-election as Indonesia's president for a second, five-year term. Since taking office in 2003, the current government has ended its civil war with renegade provinces; brought state spending under control, and launched a popular anti-corruption drive, jailing senior politicians and central bank officials. SBY's ambitious plans for Indonesia over the next five years include pledges to boost economic growth to 7% by 2014, reduce the poverty level to 8% and decrease unemployment to 5%. The government believes that a stable administration, lower capital costs and a government plan to spend as much as $34 billion to build roads, ports, and power plants by 2017 will combine to almost double Indonesia's $433-billion economy in the next five years to $800 billion.

After the Asian crisis of 1997, was widely viewed as Asia's biggest basket case. Western analysts viewed Indonesia as the next Pakistan, rather than the next China. But after the collapse of the Suharto regime, Indonesia enacted sound fiscal and monetary policies that led to a relatively quick recovery and years of strong growth. And unlike many developed and developing countries that binged on debt, Indonesia worked hard to reduce its government debt-to-GDP ratio. Since 1999, government debt as a percentage of GDP has declined to about 30%. Indonesia [has] remained one of the few countries in the world with budget deficits that are lower than 3.0% of GDP.

Morgan Stanley has proposed that as Southeast Asia's largest economy, Indonesia should be the next country to join the elite group of BRIC (Brazil, Russia, India, China) emerging economic powers. Indonesian government officials have embraced the same message. As Emil Salim, a presidential adviser and former cabinet minister summed it up: "Our target is to put another 'I' into BRIC. ... Achieving that in five years is possible."

The Van Eck's Market Vectors Indonesia ETF (NYSE: IDX) has more than doubled since its launch—far outpacing the U.S. S&P 500, and outperforming even BRIC star Brazil. It's also been the single-best performer in Q1 of 2010.

Indonesia is a deeply corrupt place with many challenges to overcome. But in many ways, Russia could be described in the same way. Yet Russia has been by far the best performing among the BRIC economies' stock markets over the past ten years. (Market Vectors Indonesia closed Monday at $73.87—Editor.)

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