Standard Chartered Plc, the London-based bank that makes most of its money in Asia, drove sales of notes tied to Indonesian government bonds to a record as investors bet incoming president Joko Widodo’s pro-business approach will drive growth.
The lender issued 4.52 trillion rupiah ($390 million) of notes in July compared with zero sales from other banks and the highest monthly tally in Bloomberg data going back to 1996.
The Jakarta governor known as Jokowi won presidential elections held last month in Southeast Asia’s biggest economy and the world’s fourth-most populous nation. He plans to boost economic growth to above 7 percent by making bureaucracy more efficient, moving tax collection and permits online to attract investment and by addressing shortcomings in the nation’s infrastructure and manufacturing sector, he said in a July 21 interview.
“We anticipate huge risk-on trading activity by clients into Indonesian rates given the pro-market election outcome,” said Jerry Huynh, Standard Chartered’s Singapore-based global co-head of foreign exchange, rates and credit structuring, referring to investors’ propensity to make higher-risk bets in times when there’s more certainty. “The election period heightened market volatility and presented significant opportunities for investors seeking to gain exposure to Indonesia.”
Jokowi garnered 53.15 percent of support at the July 9 vote while Prabowo Subianto won 46.85 percent. Prabowo, who called the voting undemocratic, has refused to concede defeat and has filed a suit seeking new voting in as many as six provinces. A court is unlikely to overturn the results considering public and international scrutiny is high, Lina Gautama, a Singapore-based research associate at consultancy Control Risks, said last week.
The “largely successful and peaceful” conclusion of the election “provides a backdrop of positive sentiment for investors exposed to the nation’s underlying credit,” Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp., said in a July 29 e-mail.
The largest credit-linked note sold by Standard Chartered last month totaled 1.97 trillion rupiah, Bloomberg data show. The 15-year securities pay a 9 percent annualized coupon and interest and the principal will be paid in U.S. dollars.
Such structures may allow investors to profit from a change in value of the underlying bond, as well as benefit from any appreciation in the currency of denomination. Fifteen-year Indonesian government bonds yield 8.472 percent.
Indonesia’s rupiah appreciated 2.55 percent last month, making it the best performing major currency in Asia, according to data compiled by Bloomberg.
Some 89 percent of all the structured notes denominated in rupiah and issued this year have been sold by Standard Chartered, Bloomberg-compiled data show. That’s up from 27 percent in 2013.
Bonds and notes linked to the debt of Indonesia may be a better investment than the nation’s equity markets, according to Simon Grose-Hodge, the Singapore-based head of investment strategy for South Asia at private wealth manager LGT Group AG.
“With the Jakarta Composite Index (JCI) already up around 20 percent this year and one of the most expensive markets in Asia, there seems to be better value in an almost 9 percent coupon from bonds, with less downside risk,” Grose-Hodge said in a July 29 e-mail.
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