Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.

Archived on July 17, 2019

Indonesia: First In Line to Break Away from the Fragile Five?

Nick Niziolek

As one of the emerging markets' Fragile Five, Indonesia finds itself saddled with a current account deficit, a fiscal deficit, and negative market sentiment. While it's far too early to sound the "all-clear," we're seeing indications that Indonesia is making progress toward graduating from the Fragile Five.

Year-to-date, the market has been positively surprised by economic data that Indonesia has reported. Real GDP growth for the fourth quarter came in at 5.7%, with full-year GDP reported at 5.8%. While year-over-year investment growth declined from nearly 10% in 2012 to 4.2% in 2013, consumption was more resilient than expected at 5.3% and exports grew at 7.4% year over year. Indonesia also moved from a trade deficit in the third quarter of 2013 to a surplus in the fourth quarter. Today, we saw additional data pointing to stabilization, with the current account deficit now below 2%.

IHS forecasts a slight decline of GDP growth to 5.0% in 2014, but against the backdrop of an improving current account deficit, flattish inflation, abating currency depreciation, and increasing foreign reserves, discussions about interest rate cuts have begun, albeit still not likely until the second half of 2014. Consensus expectations are that GDP growth bottoms out in 2014 before returning to more normalized 6% year-over-year levels, which would be a positive backdrop for Indonesian rupiah appreciation. Year-to-date, the rupiah is one of a select few EM currencies that have appreciated.

While the other Fragile Five countries continued to tighten in January, Indonesia has been on pause since November. Currency depreciation helped achieve a trade surplus, and the government has used other measures to support the rupiah, such as lower loan-to-deposit ratios, higher reserves, and swaps. A transition from tightening to easing without significant adverse impacts on growth and inflation would certainly be a positive for the Indonesia economy. More broadly, it could boost EM sentiment.

Indonesia holds legislative elections in April and presidential ones in July, with the presidential installation in October. Stalled reform initiatives probably won't pick up prior to October, although we believe increased discussion and optimism around these topics are likely. Indonesia recently announced a delay in its raw mineral export ban and an increase in allowed foreign direct investment in ports and airports. Both are positive steps toward much-needed larger reforms.

Indonesia is not out of the woods yet, but we are encouraged by its recent progress. Upcoming elections and potential monetary easing could provide key near-term catalysts. Indonesia represents 2.4% of the MSCI Emerging Markets Index, and we have been underweight in our portfolios. However, if we identify bottom-up opportunities, we are increasingly comfortable about moving closer to an equal weight in Indonesia.

    The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

    The information in this report should not be considered a recommendation to purchase or sell any particular security. The views and strategies described may not be suitable for all investors. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

    17049a 0214O C


    SEND A COMMENT

    We encourage you to send us your comments. We cannot post your comments or respond directly to them, but will review them for future blog discussions.

     

    Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end performance information, please CLICK HERE. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

    Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com.