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Financial markets recover on Jokowi's 'political safari'
The latest government bonds auction was four times oversubscribed, while the Jakarta Composite Index (JCI) recovered from its three-month low, as political lobbying from president-elect Joko âJokowiâ Widodo brought short-term relief for investors concerned about Indonesiaâs political certainty
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he latest government bonds auction was four times oversubscribed, while the Jakarta Composite Index (JCI) recovered from its three-month low, as political lobbying from president-elect Joko 'Jokowi' Widodo brought short-term relief for investors concerned about Indonesia's political certainty.
In a government bonds auction this week, investors submitted bids worth Rp 32.8 trillion (US$2.6 billion), the highest ever this year, far higher than the Rp 8 trillion targeted by the Finance Ministry.
The benchmark 10-year rupiah bonds rallied, with yields already falling by 23 basis points month-to-date to touch 8.28 percent, according to data from Asian Bonds Online. Bonds move in the opposite direction to prices, with lower yields indicating more expensive prices.
- Bids for government bonds auction this week reached Rp 32.8 trillion, highest this year
- The JCI gained 0.8 percent to close at 4,962
- Rupiah, however, fell 34 basis points to Rp 12,229 per US dollar
Investors had queued to buy rupiah bonds due to the limited supply in the fourth quarter, with only two conventional bonds auctions scheduled for the rest of the year, said Darma Yudha, a fixed-income manager with PT Trimegah Asset Management.
However, he added that Jokowi's strategy to approach representatives of opposition parties, notably Golkar Party chairman Aburizal Bakrie, also helped cool Indonesia's political atmosphere, ultimately giving short-term relief for the markets and helping to push up the price of rupiah assets.
'The bonds market has rallied significantly since Jokowi met Ical,' noted Yudha, referring to the Golkar Party chairman by his nickname.
'The signs from Golkar are positive. The markets hope that future political wrangling would not be too intense, with Jokowi being able to implement his planned reforms,' he added.
Despite being supported by a benign supply outlook and fiscal reform prospects, the balance of risk for Indonesian bonds was shifting to the downside, noted Jennifer Kusuma, a rate and fixed-income strategist with BNP Paribas in Singapore.
In September, BNP Paribas turned 'neutral' from 'overweight' on its positioning of Indonesian bonds.
'The Fed's first rate hike, expected in the second quarter of 2015, will raise market volatility,' Jennifer wrote in a note to clients. 'The upside is limited with crowded positioning and potential fuel price hikes boosting CPI [consumer price index] inflation.'
The JCI closed at 4,962 on Wednesday, 0.8 percent higher compared to a day earlier. It has rallied for two consecutive days since plunging to a three-month low on Oct. 13. Domestic investors supported the rally of Indonesian equities, as foreign investors posted a net sell of Rp 182.5 trillion on Wednesday.
Meanwhile, the rupiah fell 34 basis points to trade at 12,229 on Wednesday, according to the Jakarta Interbank Spot Dollar Rate (JISDOR).
The currency 'could come under further upside pressures' if the sell-off of Indonesian assets continued, analysts from Malaysia-based Maybank wrote in a note to clients on Wednesday.
In the bonds market, foreign holdings have decreased by Rp 6 trillion month-to-date, but the sell-off could still worsen if the rupiah weakened above 12,300 per dollar, according to Handy Yunianto, a fixed-income analyst with Mandiri Sekuritas.
'Unlike in the past, our bonds markets today is no longer affected only by inflation ' it will also be affected by the moves in the rupiah and the yield of US treasuries,' he said.
Other emerging-market stocks mostly retreated for the first time in three days as oil slumped and Chinese inflation data added to signs of tepid demand in the world's second-largest economy. Russia's ruble rebounded from an all-time low.
The MSCI Emerging Markets Index dropped 0.3 percent to 988.78 at 1:57 p.m. in London.
The developing-nation gauge has lost 1.4 percent this year and trades at 10.6 times projected 12-month earnings, data compiled by Bloomberg shows.
The MSCI World Index has slid 3.3 percent and is valued at a multiple of 14.
