TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Big fund managers bullish about Indonesia
Despite Indonesiaâs widening current-account deficit, major fund managers globally are holding on to their rupiah assets as they maintain a bullish outlook about the country, arguing that the latest economic pressures are cyclical in nature and may be short-lived
Change Size
D
espite Indonesia's widening current-account deficit, major fund managers globally are holding on to their rupiah assets as they maintain a bullish outlook about the country, arguing that the latest economic pressures are cyclical in nature and may be short-lived.
US-based fund manager Invesco Asset Management, which manages US$767 billion worth of assets globally, remained 'overweight' about Indonesia due to the positive outlook of stock fundamentals, investment director Jalil Rasheed said in a recent email interview with The Jakarta Post.
An 'overweight' position means that a fund manager holds an extra amount of assets within a specific country, predicting their returns will outperform countries whose assets were rated 'neutral' or 'underweight'.
'The change in the current-account deficit is not enough to change our view on Indonesian assets, particularly as the weakness in the second quarter is seasonal and was largely expected,' argued Peter Sengelmann, a senior portfolio manager with ING Investment Management, which oversees $230 billion worth of assets worldwide.
Indonesia's current-account deficit, the broadest measurement of international trade, widened to $9.1 billion, equivalent to 4.3 percent of gross domestic product (GDP), in the April-June period, more than double the first quarter's figure of $4.1 billion.
However, last week's announcement that Indonesia's current-account deficit had widened was followed by an increase in the rupiah, which rose 1 percent during last week to close at 11,693 per US dollar, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).
The Jakarta Composite Index (JCI) advanced 1.9 percent throughout last week to close at 5,148.9 on Friday, while the yields on government bonds dropped eight basis points to 8.22 percent. Bond yields move in an opposite direction to prices, with lower yields indicating more expensive pricing.
'The outlook for Indonesian fundamentals continues to look solid, while the risks ' there are always risks ' are not principally fundamental in nature,' said Jan Dehn, the global research head with Ashmore Investment Management, a UK-based fund manager that focuses on investing in emerging markets.
Given current economic developments, Ashmore saw the opportunity to benefit from the temporary volatility in the Indonesian debt market to add to its position with the rupiah bonds, Dehn said.
'The rupiah is nearly 20 percent cheaper than at this time last year; inflation has collapsed to 4.6 percent, while domestic bond yields are more than 8 percent ' this means that real rates in Indonesia are among the highest in the world,' he explained in an email interview from London.
Overseas investors have thus far played a crucial role in the recent blockbuster performance of Indonesia's financial markets.
In the equity markets, foreign investors have posted a net buy of Rp 55.6 trillion ($4.76 billion) of Indonesian equities in 2014, propelling the JCI to advance 20.5 percent year-to-date, the second-best performer in Asia after India's Sensex.
In the fixed-income market, foreigners have added to their portfolios, totaling Rp 95.2 trillion year-to-date, with rupiah bonds, with foreign ownership in government bonds now already hitting 36.6 percent from total outstanding ' the highest level in Indonesia's history.
However, not a few fund managers are nonetheless worried that the recent surge in the prices of rupiah assets may not have been driven by fundamentals, with a worsening macroeconomic framework likely to risk a reverse in foreign fund flows.
'We have become increasingly cautious about Indonesia, given the slowing economic momentum and widening trade deficit,' said Aidan Yao, a senior economist with AXA Investment Managers, which controls $725 billion of assets worldwide.
The recent rise in Indonesian asset value reflected more of the priced-in optimism of the presidential election, he noted.
Yao said that, aside from the short-term rally, for the economy's long-run prospects, 'there are question marks about whether the new government can fulfill its election promises, justifying optimistic investors' expectations'.
