A Surprise Winner as Emerging Markets Crumble

Call it a taper tantrum, times 10. Developing nations are reeling from the double whammy of Federal Reserve interest-rate hikes and China’s economic slowdown. They are burning through foreign reserves at the fastest pace since the 2008, to defend their currencies and cover higher import bills for food and fuel. Foreign investors are heading for the exits, while frontier economies such as Sri Lanka and Bangladesh have sought bailouts from the International Monetary Fund. The picture is not pretty.

Amid the chaos is a surprise winner. Indonesia, which was singled out as a Fragile Five less than a decade ago for its vulnerable currency and reliance on hot foreign money, has been a haven of relative calm.

The rupiah, down only 3.8%, is the third best-performing Asian currency this year. It’s all the more remarkable considering Bank Indonesia has resisted following the Fed and only began raising interest rates this week, by a modest 25 basis points.

Its stock market is another winner. The iShares MSCI Indonesia ETF is up 5.6% this year, beating the S&P 500 Index’s 13.1% drop. As a result, even though foreigners have been selling holdings of government bonds, robust equity demand has helped stabilize Indonesia’s portfolio flows.