Indonesian Credit Finds a Sweet Spot With Rebound From Slump

Optimism that Indonesia’s economy will be the first in Southeast Asia to come out of economic recession will help the rally in its local bond market pick up pace, some of the country’s biggest fund managers said.

Spreads on top-rated rupiah corporate debt will narrow about 75 basis points for five-year notes to about 110 basis points over comparable government bonds in the next couple of months, according to PT Sinarmas Sekuritas and the local unit of Manulife Financial Corp.

“Indonesia’s credit market is in a sweet spot,” said Jeffrosenberg Tan, head of investment strategy at Sinarmas Sekuritas. An expected economic rebound this quarter and a relatively limited budget deficit are helping the environment, which has already benefited from a broader rally in emerging markets.

Indonesian Credit Finds a Sweet Spot With Rebound From Slump

Asian credit markets rallied to the strongest since March after Joe Biden beat Donald Trump in the U.S. presidential elections this month. Biden may pursue policies that support growth in developing nations, and the Federal Reserve is likely to keep its accommodative monetary policy, according to investors and analysts.

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Optimism about a rebound in Indonesia is also helping its stock market, according to John Teja, a director at PT Ciptadana Sekuritas Asia. The Jakarta Composite Index has rallied about 7% this month.

Third-quarter data shows the economy is over the worst, and household spending and investment will help it recover further, the finance minister said last week. Gross domestic product will grow 0.1% year-on-year in the fourth quarter after the first back-to-back contraction since the Asian financial crisis more than two decades ago, according to analysts surveyed by Bloomberg.

Young demographics in the world’s fourth-most populous nation and its reliance on domestic consumption will help Indonesia to emerge from recession, Ezra Nazula, chief investment officer at PT Manulife Aset Manajemen Indonesia, the local unit of Manulife, said in a phone interview.

“This is a good time for corporates to raise funds through bonds,” he said. “As government bond yields continue to fall, we have to seek yield from highly rated corporate debt.”

©2020 Bloomberg L.P.

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