Smart money on govt bonds, property, commodities: Deutsche Bank

The Jakarta Post , Jakarta | Wed, 07/09/2008 10:48 AM | Business

While other-country government bonds are being shunned amid a gloomy economic outlook, Indonesia's government bonds offer high yields in an inflation-controlled environment, a global analyst says.

An estimated global slowdown triggered by high oil and food prices and fears of a U.S. recession have discouraged investors from buying government bonds.

However, Chew Soon Gek, chief investment officer for Asia at the Deutsche Bank Private Wealth Management, said Tuesday Indonesia's government bond yields were favorable compared to those of other countries' bonds and that there were no reasons investors should not buy them.

Last month, the Indonesian government sold Rp 3 trillion of bonds; Rp 2 trillion worth of 20-year notes with 13.59 percent yield and Rp 1 trillion of 10-year notes with 13.41 percent yield.

In comparison, the U.S. government offers 10-year bonds with a 3.96 percent yield and 30-year bonds with 4.53 percent yield.

Indonesian bonds have also proven popular of late due to a lower-than-expected inflation rate and confidence in the rupiah.

Chew said Indonesia's inflation containment effort had boosted confidence in the nation's economy.

"Although Vietnam, for instance, offers high bond yield, their high inflation has deterred investors," she said.

Vietnam last week sold $121,000 worth of bonds at a yield of 11 percent after failing to sell any in seven previous attempts, Reuters reported.

Vietnam's inflation currently stands at 25 percent.

Chew said investing in commodities was another viable money-making option.

She said the rise in population, earning growth and the growing popularity of biofuel had increased demand, adding that current prices were still well short of the all-time high prices reached in the 1970s.

Agriculture commodities are among the top "cheapest" products relative to their record highs. For example, sugar is 1165 percent less expensive than its all-time high, coffee is down by 677 percent, cotton by 339 percent down, soybean by 181 percent and corn by 141 percent.

Metals are also well off their records, although not to the extent of soft commodities.

The real price of silver stands at one-third of its peak, aluminum and gold are near half, while lead and cooper are at a quarter of their record values.

Crude oil currently stands at its record high.

She said she expected the price of gold to rise to more than $1,000 by end of the year.

"Gold is usually used for hedging. The seasonal demand in the fourth quarter and the Federal Reserve's low interest rate may make gold more attractive. The geopolitical situation may also shoot up the price," she said.

"But to avoid risks, it is important to diversify investment in commodities because not everything may perform well."

In countries facing high inflation, including Indonesia, the property market is often a defense against inflation, she said, although she warned about the U.S., UK and Spain real estate markets.

"Real estate is always a good thing to invest in because it usually grows with inflation." (mri)

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