Investors Will Regret Dumping Indonesia’s Bonds, Manulife Says

  • Global funds sold rupiah sovereign debt for four straight days
  • Nation has highest level of foreign bond ownership in region

Investors who unloaded Indonesian government bonds in this year’s longest stretch of outflows may come to regret doing so, said PT Manulife Aset Manajemen Indonesia, which expects the debt to remain Asia’s best as the nation’s economic strength outweighs the impact of higher U.S. interest rates.

Overseas investors pulled 5.5 trillion rupiah ($404 million) from Indonesian debt in the four days through Tuesday, pushing the 10-year yield to the highest in more than two months. The rupiah fell 2.2 percent during the period as Federal Reserve officials indicated a rate hike may happen as early as June.

“The recent weakness in the Indonesian government bond market was part of an overall negative sentiment toward emerging markets,” said Ezra Nazula, head of fixed income at PT Manulife Aset Manajemen Indonesia in Jakarta. “We do see this as temporary. Almost all domestic macro data is still quite constructive.”

The yield on 10-year rupiah notes fell to 7.89 percent on Thursday after touching 7.96 percent two days earlier, the highest since early March, according to the Inter Dealer Market Association. The rupiah rose 0.4 percent to 13,605 per dollar as of 12:51 p.m. in Jakarta, prices from local banks show.

Global funds own 38 percent of Indonesian government bonds, compared with 33 percent for Malaysian securities and 14 percent for Thai notes, official data show. Indonesian debt generated a 10 percent return this year through Wednesday, the most among emerging Asian markets, according to Bloomberg Bond Indexes.

Analysts see Southeast Asia’s biggest economy rebounding from the slowest annual growth in six years as the government accelerates infrastructure spending and commodity prices stabilize. Bank Indonesia may loosen monetary policy next month if the global macroeconomic condition remains stable, Governor Agus Martowardojo told reporters in Jakarta on Wednesday.

Before it's here, it's on the Bloomberg Terminal.