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mid the recent financial turmoil in Turkey and other emerging economies, Indonesia'€™s biggest fund managers carry a warning: Watch out for domino effects.

Though predicting increases in Indonesian equities this year as elections boosted spending, UK-based Schroders and Canada-based Manulife Asset Management warned that the recent sell-off among portfolio investors in Argentina and Turkey might also hurt Indonesia, as they were all seen in the same asset class of emerging economies among investors.

The local units of the financial services giants are the two biggest fund managers here, with managed assets worth Rp 90 trillion (US$7.4 billion) combined.

'€œWould there be any spillover into other emerging markets? Yes, there would. What happens in Turkey may lead to spillovers in South Africa, Indonesia, India '€” almost all emerging economies will feel the impact,'€ Michael T. Tjoajadi, the chief executive officer of Schroder Investment Management Indonesia, said on Wednesday.

In response to recent capital outflows and a weakening currency, Turkey'€™s central bank held an emergency late-night meeting on Tuesday that concluded with drastic interest rate hikes, with its one-week repo rate raised to 10 percent from 4.5 percent.

Recently, global fund managers also dumped their assets placed in Argentina, after seeing the country grapple with alarming levels of inflation and currency depreciation, both of which had already hit double digits, raising the specter of a potential default in South America'€™s third-largest economy.

'€œIn Argentina, people don'€™t think the problem is over. There may be some surprises, with further spillovers [to Indonesia] still expected,'€ said Michael, who leads the biggest fund management firm in Indonesia that oversees $4.1 billion worth of assets.

The Jakarta Composite Index (JCI) declined the most in five months on Monday before rebounding 1.7 percent to close at 4,417.35 on Wednesday, on the back of improving global sentiment.

Indonesia'€™s bonds market recently also saw sell-off pressure among foreign investors, with the yield of the government'€™s 10-year bonds touching its three-year high of 9.18 percent before rallying to touch 8.83 percent on Tuesday.

Analysts say the threats of contagion from overseas financial crises to Indonesia will become more serious because of the widespread use of a passive investment scheme called exchange-traded funds (ETFs), the popularity of which has gained traction in the past few years.

ETFs classify all emerging countries into one basket of investment asset class, instead of sorting countries based on their risks.

This means that a sell-off in one country might lead to similar scenarios in others, eventually leading to broad-based outflows in emerging economies.

'€œAn adjustment in one country in ETFs could affect others. So, if Indonesia is included in the adjustment, then it may face sell-off pressure as well,'€ warned Alvin Pattisahusiwa, the chief investment officer with Manulife Aset Manajemen Indonesia, which manages $3.3 billion worth of assets.

However, Alvin argued that contagion effects from offshore developments might be a threat in the short-run, as investors would notice that Indonesia still had strong economic fundamentals compared to its peers in other emerging markets.

'€œIt'€™s because the sell-off is driven by sentiment only. You have to differentiate sentiment from the fundamentals,'€ he said on Wednesday.

Bank Indonesia (BI) spokesperson Peter Jacobs said the country should be better prepared against capital outflows this year due to improving macro-economic indicators, but added that the central bank '€œwould remain watchful over potential contagion effects'€ from the latest troubles engulfing emerging market economies