After India kicked off the world's largest exercise in democracy last Thursday, on Wednesday it is Indonesia's turn. The largest Muslim-majority nation is taking part in the world's largest direct election of a president.
Indonesia, with just the 193 million voters compared with India's 900 million, has no electoral-college complexities like the United States, and appoints its president straight into office. India follows the British prime ministerial system of indirect elections, based on its colonial roots.
Both outcomes are highly significant for investors in Asia -- and emerging markets. Behind the scenes, religion plays a major role in both India and Indonesia.
The results from Indonesia are coming in as I write, and are very encouraging. Indonesian stocks and Indonesia's economy should get a boost.
I'm hearing that business-friendly incumbent Joko "Jokowi" Widodo has won by 13% at last count, double the margin of victory in 2014, when he garnered 53% of the vote to his opponent's 47%.
That's excellent news for Indonesian companies, infrastructure spending and investors, whether of the foreign-direct or stock persuasion. I'll explain why in a second.
But first, U.S. punters have got two direct plays covering the broad Jakarta market.
The iShares MSCI Indonesia ETF (EIDO) is the larger of the two, with $650 million in assets. It tracks the MSCI Indonesia Investable Market Index, which makes sense. The Jakarta market is small enough and the Jakarta business community closed enough to make many companies no-go areas for international investors.
Financials make up 40% of the ETF's holdings, with banks constituting four of the six largest constituents. Consumer goods (25%), telecoms (11%) and raw materials (6%) make up most of the rest.
The VanEck Vectors Indonesia Index ETF
IDX tracks the MVIS Indonesia Index. It has a "modified market-cap" weighting that caps holdings at 8% to prevent over-concentration, whereas Bank Central Asia and Bank Rakyat Indonesia comprise more than 12% -- each -- of the MSCI fund. The VanEck product also screens companies for a minimum market cap of $150 million and minimum trading volume of $1 million per day.
The cap on individual weightings in the VanEck product stresses financials (32%) and telecoms (9%) less, since those mega-caps are constrained. It gives a greater weighting to raw materials (10%) and energy (9%), which are the real root of Indonesia's economy, and a slightly higher (26%) allocation to consumer goods that represent the growth of middle class and disposable income.
The VanEck fund's expense ratio, at 0.57%, is two basis points below the larger MSCI fund.
In terms of performance, the two funds are similar, with the MSCI fund up 5.0% so far in 2019, and the VanEck moving ahead 5.2%. But I would give the edge to the VanEck ETF as a way to play the Jakarta market.
Indonesia, like many emerging markets, has struggled in 2019. Investors have reduced risk, faced with what looks like a coordinated global slowdown. Those who are putting their money to work in Asia have been favoring its best-performing economies, India and China.
But watch for an Indonesian emergence. The election results, if Jokowi wins handily, are a vote of confidence in his reforms that encourage domestic business performance and foreign investment.
Indonesia's vote pits Jokowi against the same competitor he faced last time the country went to the polls. In 2014, he defeated Prabowo Subianto, former son-in-law of the dictator Suharto, and an ex-special-forces general himself, who attempted, unsuccessfully, to crush the independence movement in East Timor.
I've been to Timor Leste, as it's known in Portuguese, a couple of times, and I can tell you the scars of that independence war are still etched in the country's red earth. Indonesia funded militias who killed Indonesia's enemies, raped women and killed hundreds of innocents including priests and children. The Indonesian "Kopassus" special forces shot up the infrastructure Indonesia built, and took out the independence supporters the militias didn't get.
So I am very glad that Jokowi appears to have won re-election. He is a secular leader who cut the fuel subsidy in Indonesia, an oil-producing founding member of OPEC, to fund desperately needed infrastructure spending. The world's largest archipelago, with some 17,000 islands, is colossally difficult to run. With trans-island highways complete or under construction in all the major islands (Java, Borneo, Sumatra, Papua), he's doing his best to join the dots.
He has even finally got Jakarta's subway running. The MRT finally opened in late March, with a 16-kilometer (10-mile) line. It has taken six years of construction and numerous delays, not to mention $1.1 billion in investment, but will ease traffic in a notoriously snarled city.
Jokowi, a former furniture salesman, rose first to become Governor of Jakarta. From there, he became the first Indonesian president to come from outside the political and military cabal that previously ran the country.
Prabowo is firmly rooted in that elite establishment tied to the dictatorships of Suharto and his predecessor, Sukarno. He married, then divorced, Suharto's second daughter. In this election, Prabowo has clad himself in the trappings of Islamic fundamentalism, forcing Jokowi to shift to the right himself, and appoint a Muslim cleric as his running mate.
Jokowi does a good job of demonstrating his piousness on Instagram, where I follow his feed. The message behind the majority of his posts is that he's a man of the people.
Hopefully, he can put any religious extremism behind him. His previous presidency began with great optimism only to run aground, with numerous cabinet reshuffles, as fundamentalists honed their knives for his back.
Instead, Jokowi is back front and center. He's also the right man for investors. They should applaud his re-appointment, and watch those two ETFs for victory-induced gains.