Market gravity swings from West to East: HSBC

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Bond markets in emerging nations, including Indonesia, have become more attractive compared to developed nations, as shown by the fact that many investors are switching their preference from the risky, debt-ridden economies in the West to more stable economies in the East, analysts from HSBC say.

At the moment, investors are backing off from purchasing bonds in developed nations due to their stalling economic recovery and concern about debt levels, according to Guillermo Osses, managing director of HSBC Global Asset Management.

Meanwhile, risks of investing in emerging nations have decreased, as indicated by the downward trend of interest rates of bonds offered by these nations.

“Many investors who used to invest in bond markets in developed countries, over the last two or three years have prefered to invest in emerging countries, because the credit is better and the yield more attractive,” Ossess said in Jakarta on Friday.

He pointed out to the fact that the MSCI EM index — which measures the gap between interest rates offered by US treasuries and emerging nations’ dollar-denominated bonds – is currently hovering at its lowest level since the 1997 financial crisis, indicating an improvement of investor confidence.

The low spread of the index is mostly caused many emerging nations included in the index having their credit ratings upgraded, a condition that helped pushdown the interest rates of the bonds and lower the investment risks.

“Since the crisis, the economic structure of emerging economies has significantly improved… which is why spreads have been in compressed,” added Ossess.

Indonesian bonds are in high demand. Two members of the so-called “Big Three” rating agencies, Fitch Ratings and Moody’s Investors Service, have awarded investment-grade status to Indonesia’s debt paper, thanks to the countries economic resilience.

Indonesia’s government bonds rallied on Friday, pushing yields on securities due in 2022 to the lowest level in 10 weeks, as overseas investors increased ownership.

The yield declined for a seventh day after global funds added Rp 83 trillion (US$398 million) to their sovereign debt holdings this month through Oct. 17, Finance Ministry data show.

The yield on 7 percent 10-year bonds fell 12 basis points (0.12 percentage points) this week to 5.76 percent, the lowest since Aug. 10.

“Overseas investors are attracted to Indonesia because the yields of its government bonds are high compared to other ASEAN countries,” said Ali Setiawan, the head of global markets at HSBC Indonesia.

 “Plus, they are much more comfortable with Indonesia because of its strong economic fundamentals.”

Investors also believe that Indonesia’s economic performance will continue in the long-run, as evidenced by Indonesia’s long debt papers– 10- or 20-year maturities — were also sought-after products,  according to Ali. “Some of the investors have even started to explore investments in Indonesia’s corporate bonds,” he added.  

Up to Sept. 18, the Finance Ministry’s debt management office had raised Rp 206.8 trillion from bond issues, or 76 percent of its annual target of Rp 270 trillion. To meet the target, the ministry had announced a plan to introduce yen-denominated Samurai bonds in the fourth quarter.

The ministry also announced a plan to sell dollar-denominated bonds to domestic investors next year, after previously offering them only to foreign investors. (sat)