iShares MSCI Indonesia ETF (EIDO) is an exchange-traded fund that invests in public companies which are business residents of Indonesia. Although Indonesian Central Bank raised its interest rates on November 17, showing its compliance with the rest of the world’s interest rate trends, its monetary policy still remains relatively accommodating unlike that of many developed economies. On that occasion, the Bank of Indonesia raised the seven-day reverse repo rate to 5.25%. It also raised the deposit and lending rates by the equal rate, to 4.5% and 6% respectively. Governor Perry Warjiyo commented that the board’s decision was nothing more than a “preemptive” move to lower inflation expectations and bolster the rupiah. So, under the circumstances, Indonesian economy and stocks look to possess at least an arbitrage discount to valuations of global markets as a whole, and, therefore, are worth to have a more detailed look at.

While Indonesia is considered to be an emerging economy, ranking 64 among 127 countries globally for economic complexity (lower rankings indicate higher complexity), EIDO had $546 million in assets under management as of November 25, 2022, with 93 holdings in total. The dividend yield (calculated on a 30-day SEC yield basis) was 1.67% as at the end of October 2022. Indonesia's equity market would therefore appear to be relatively well-developed vis-à-vis its local economy.

A popular emerging markets equity fund, iShares MSCI Emerging Markets ETF (EEM) had a 2.02% position in Indonesia as of November 24, 2022, with the bulk of the fund invested in China (29.22%), India (14.87%), Taiwan (14.67%), and South Korea (12%). EIDO is an alternative fund with a single-country focus on Indonesia. The fund's benchmark index, whose performance it seeks to replicate, is the MSCI Indonesia IMI 25/50 Index.

The core inflation rate in Indonesia has actually been encouragingly moderate this year. The chart below shows the core year-over-year inflation rate trending higher toward 4%, however this level has not yet been reached, and the long-term trend is still negative.

Using the most recent factsheet for EIDO's benchmark index, MSCI indicate trailing and forward price/earnings ratios of 14.80x and 12.90x, respectively, with a dividend yield of 2.90% (trailing) and a price/book ratio of 2.23x. These figures imply a forward return on equity of 17.29%, and a dividend distribution rate of excess of 40%. What’s important is that the fund is heavily invested in mature sectors such as financial services, telecommunications, and consumer staples.

Net fund flows into EIDO over the past year have been broadly positive: the figure is rapidly approaching $200 million. However, flows have also been somewhat volatile throughout the year, as global equity markets have trended lower.