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.
Indonesia's rising local investors and bond market resilience
The Indonesian bond market has provided some shelter from the global volatility caused by the COVID-19 pandemic.
Change Size
City landmarks: A Commuter Line train speeds through a low-income residential area, as high-rise buildings, including those belonging to national banks, stand out in Jakarta on June 27, 2023. (Antara/Rivan Awal Lingga)
By
Jakarta
In a volatile and fear-driven global bond market, a solid and growing investor base is crucial as these investors have local knowledge and can lower complexity. In Indonesia, local investors' participation has risen sharply in the post-COVID-19 period.
The turbulence in the global foreign exchange (FX) and bond market during 2020, and the increasing risk of inflation and tightening in 2021 and 2022 have prevented global investors from entering emerging markets' (EM) local currency (LCY) bond market. At times like these, local investors come to the rescue and boost demand for bonds.
During the initial outflow, Bank Indonesia (BI) stepped in to buy government bonds. Aside from BI's participation during the pandemic through the burden-sharing scheme, there was a more sustained and widespread increase in demand for Indonesian bonds. The banking sector was the first to increase participation when COVID-19 arrived in 2020. The limited loan demand, sufficient liquidity from the government’s national recovery plans and the changing risk perception pushed banks to significantly increase holdings of government bonds. BI's secondary statutory reserve regulations also incentivize banks to hold some of their reserves in highly liquid bond assets. Local banks' ownership of SBN rose from Rp 581 trillion (US$38.7 billion) in 2019 to Rp 1.69 quadrillion in June 2023.
