Indonesia has been demonstrating one of the highest economic growth rates in Southeast Asia and beyond, despite weaker commodity prices and global recessionary patterns. Indonesia's trade balance had a strong start to the year. Growth in export receipts even accelerated to +$23.5bn in March (from +$21bn in February), with the trade balance remaining in excess despite commodity-related terms of trade. Momentum from China's reopening has also helped, boding for the future of exports and tourism.

Indonesia's annual inflation rate dropped to an 11-month low of 4.33% in April 2023 from 4.97% in March and below the market consensus of 4.39%, with food prices rising the least in 13 months (4.58% vs. 6.05%).

Perhaps the biggest drivers of the near-term outlook, however, are strong domestic consumption (despite monetary tightening) and the potential for rate cuts and increased political spending in 2H 2023 ahead of next February's general election. While real GDP rose 5.0% YoY Q1, corporate earnings still have plenty of room to improve later in the year, which isn’t yet priced in the current valuations of the majority of Indonesian stocks. Southeast Asia remains one of very few world’s destination for all sorts of roamers and digital nomads – thanks to favorable weather, general hospitality and modernity of the country, as well as zero political tension with external world. It helps Indonesia lure bigger tourist crowds, thereby ramping up more revenues from this important source of prosperity of Indonesian economy.

The U.S.-listed iShares MSCI Indonesia ETF (EIDO) tracks, before fees and expenses, the performance of the market cap-weighted MSCI Indonesia IMI 25/50 Index, which represents a very good natural composition of the Indonesian free float-adjusted market cap. The ETF has seen a significant increase in its NAV at $506 million (up from ~$449 million) and maintains a highly competitive ~0.6% expense ratio despite being one of the few single-country Indonesian options available to US investors.

Like similar Southeast Asia ETFs, EIDO has a strong focus on the financial sector (generally speaking, banks). Allocation is now up to 46.8% (previously around 46%) after the sector's strong Q1 performance, widening the gap to iShares MSCI Malaysia ETF (EWM) to around 39%. The rest of the portfolio composition remains largely unchanged, with the exception of increased weights for EIDO's top sectors. Consumer staples held steady at 11.6% (unchanged), followed by materials (down 9.2%), communications (down 9.2%) and energy (unchanged). With the top 5 accounting for approximately 84% of the total portfolio, EIDO remains a highly concentrated fund from a sector perspective.