Amundi Boosts Indonesia Debt Holdings as Ratings Approach Investment Grade

Indonesia’s bonds, Asia’s best performers this year and last, may lead regional gains in the coming 12 months as an improving economy and rising commodity exports help the nation win investment-grade debt ratings, Amundi Singapore Ltd. said.

Fitch Ratings upgraded Indonesia in January and Standard & Poor’s followed suit in March. Moody’s Investors Service on June 21 raised the outlook on its grade to “positive,” citing strengthening demand in Southeast Asia’s biggest economy. S&P and Moody’s rank Indonesia two levels below investment grade, while Fitch awarded the highest of the so-called junk ratings.

“We are very positive on Indonesia’s local and external debt, which is one of the bigger bets within our investments in Asian sovereign debt,” Philippe Jauer, chief investment officer of Amundi Singapore, said yesterday in an interview. “We should see Indonesia as an investment-grade country in the next 12 to 18 months.”

South Korea and India have also won ratings upgrades this year as Asia led the recovery from a global recession and Jauer predicts improving creditworthiness will remain a theme for the region. Concern some European nations will struggle to pay their debts led to downgrades for Greece, Portugal and Spain this year, while Moody’s in May said the U.S. may lose its top grade unless more is done to trim the budget deficit.

Leading Gains

Indonesia’s local-currency bonds have handed investors returns of 15 percent this year and 22 percent in 2009, the best performances among HSBC Holdings Plc indexes tracking Asia’s 10 largest economies excluding Japan. Its dollar-denominated debt is leading gains this year with a 13 percent return and last year’s advance of 45 percent was second only to India, based on separate benchmarks compiled by Europe’s largest bank.

Indonesia, the world’s biggest producer of thermal coal and palm oil, is benefiting from large capital inflows and strengthening demand for raw materials in China, said Jauer, who has a third of the $4 billion of fixed-income assets he oversees invested in Asia. He predicts the rupiah has scope to appreciate further after gains of 4.9 percent so far this year and 16 percent in 2009.

Economic growth in Indonesia is forecast to accelerate to 6 percent in the second half of this year from 5.8 percent in the six months ended June, the finance ministry said in a statement on July 26. The economy has expanded every year since 1998, uninterrupted even as the global financial crisis tipped neighboring Malaysia and Singapore into recessions.

Budget Deficit

The nation’s budget deficit was equivalent to 1.6 percent of gross domestic product last year, compared with 13.6 percent for Greece and 11.2 percent for Spain. The shortfall in the U.S. was 9.9 percent of GDP in the fiscal year ended Sept. 30.

The country’s 5.875 percent dollar-denominated note due March 2020 has returned 15.3 percent to investors since the securities were sold in January. That’s about double the 7.9 percent gain in the Asia Dollar Bond Index compiled by HSBC, a benchmark used by Amundi to gauge the performance of its foreign-currency bond investments.

The bonds yielded 4.41 percent late yesterday, 148 basis points more than similar-maturity U.S. Treasuries. The spread was 228 basis points when the securities were issued.

Amundi, created in December from the merger of Societe Generale SA and Credit Agricole SA’s asset-management units, looked after $927 billion of assets as of March 31, including more than $600 billion of bonds.

Singapore, Hong Kong

In addition to Indonesia’s dollar-denominated debt, Jauer said he is buying local-currency bonds sold by Singapore’s real- estate developers and quasi-government bonds in Hong Kong because of the strength of their balance sheets and the economies they operate in. He also likes dollar bonds sold by South Korea’s banks, saying yields are excessive compared with U.S. corporate debt.

“Singapore has proven to be quite resilient during the global crisis and the Singapore dollar offers good value,” he said. The currency has strengthened2.7 percent this year to S$1.3656 per dollar and Jauer said there’s scope for further appreciation to counter inflation pressures as property and vehicle prices climb.

Among Asia’s investment-grade corporate bonds rated by S&P, none from Asia have defaulted in any of the last 11 years, the ratings company said in a note published in May. Last year’s default rate was 0.33 percent in the U.S. and 0.59 percent across emerging markets, the report said.

Asia’s investment-grade corporate bonds yielded 226 basis points more than Treasuries yesterday, according to an index compiled by JPMorgan Chase & Co., versus this year’s low of 167 basis points in April. For similar-rated notes in the U.S., the spread was 163 basis points on July 27 versus 127 in mid-April.

“Asian spreads are still wider than those for U.S. companies,” he said. “There’s a valuation gap, given that Asian companies are in better shape in general than their U.S. counterparts.”

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

• Tweet
• More
  • Business Exchange
  • Buzz up!
  • Digg
• Print
• Email