Deutsche Bank Indonesia predicts investors will be attracted to the country’s domestic capital market, given the stronger rupiah and favourable interest rates.
The bank forecast the rupee to strengthen during the first half of 2021, in line with the potential economic improvements due in part to the national immunization program. The bank also expects the country’s central bank, Bank Indonesia (BI) to keep the benchmark interest rate at around 3.75% this year after making five rate cuts in 2020 to support the economy in the midst of the C19 pandemic.
Given such, Deutsche Bank Indonesia strategists “believe Indonesia offers one of the best volatility-adjusted carry proposals in emerging markets,” in a January 13 statement.
“Indonesia remains one of the most attractive destinations for emerging market investors allocating capital to Asia,” according to Siantoro Goeyardi, Deutsche Bank CEO in Indonesia.
The government has aggressively issued bonds to fund its 695.2 trillion rupee (US$49.4 billion) C19 stimulus and to narrow the growing deficit amid the outbreak’s impact on tax revenues.
In December, the government raised Rs 958.6 trillion in debt financing in the form of bonds and loans, an increase of 143.8% from the same period in 2019. Meanwhile, data from December 21, 2020 showed that foreign investors held Rs 997.41 billion in rupee-denominated bonds, 6% lower than the annual figure of Rp 1.06 quadrillion in 2019.
Foreign investors around the world threw away risky assets early last year, including Indonesia, as C19 fears sparked market volatility and made safe-haven assets more lucrative.
Meanwhile, the country’s currency bonds were “the most traded emerging market debt assets globally, and valuations are expected to benefit this year as investor capital returns to the region in search of yield.” Deutsche Bank said.
The government raised $3 billion and €1 billion in sovereign bonds issued in four tranches in January 2020.
SOURCE: Internal Editorial + The Jakarta Post