Indonesian corporate dollar bonds have turned into Asia’s best performers this year and fund managers say the chances of the nation winning a higher debt rating could supercharge the rally.
As President Joko Widodo improves government finances, S&P Global Ratings may upgrade the nation to investment-grade this year, according to BEA Union Investment Management and Pinebridge Investments. Indonesian US currency bonds gained 11.9% this year, the most on a Bank of America Merrill Lynch index of Asian company debt. In 2015, it was the second-worst performer after Mongolia.
"The fundamentals of Indonesia really improved a lot," said Pheona Tsang, head of fixed income at BEA Union in Hong Kong, which manages US$6.8 billion ($9.3 billion) of assets. "We are past the panic mode last year when we were very concerned about the currency."
The rally is a sharp reversal from last year, when the rupiah slumped as investors focused on the nation’s relatively high inflation, compounded by its twin budget and current account deficits. Jokowi, as the former Jakarta governor is known, is funding infrastructure spending by cutting gasoline subsidies, while the central bank has been effective in curbing living costs and stabilizing the Indonesian rupiah.
A government report on Friday showed the current-account deficit narrowed to US$4.7 billion ($6.5 billion) in the first quarter from US$5.1 billion in the final quarter of 2015 as it paid less to import oil. Bank Indonesia may leave its benchmark policy rate unchanged on May 19 after cutting it 75 basis points in the first quarter, according to Bloomberg Intelligence. Inflation cooled to 3.6% in April, the lower half of its 3 to 5% target range.
When asked about the likelihood of an upgrade this year, S&P spokeswoman Emi Nakata said its views on Indonesia’s rating haven’t changed, without providing further comment.
While yield spreads for Indonesian corporate bonds have tightened amid improved investor sentiment, companies face refinancing pressure amid weakness in the consumer and property sectors, Xavier Jean, S&P’s senior director, corporate ratings said during a call with journalists on May 12.
"We are not yet seeing a widespread pickup in operating conditions for the corporate sector," said Jean.
Indonesia’s economy grew 4.9% in the first quarter, slowing from 5% during the previous three months, hit by plunging prices for the country’s commodities like palm oil and coal. A total of seven Indonesian companies have defaulted on US dollar bonds in the past five years, including Berau Coal Energy Tbk and Bakrie Telecom Pte, according to data compiled by Bloomberg.
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As President Joko Widodo improves government finances, S&P Global Ratings may upgrade the nation to investment-grade this year, according to BEA Union Investment Management and Pinebridge Investments. Indonesian US currency bonds gained 11.9% this year, the most on a Bank of America Merrill Lynch index of Asian company debt. In 2015, it was the second-worst performer after Mongolia.
"The fundamentals of Indonesia really improved a lot," said Pheona Tsang, head of fixed income at BEA Union in Hong Kong, which manages US$6.8 billion ($9.3 billion) of assets. "We are past the panic mode last year when we were very concerned about the currency."
The rally is a sharp reversal from last year, when the rupiah slumped as investors focused on the nation’s relatively high inflation, compounded by its twin budget and current account deficits. Jokowi, as the former Jakarta governor is known, is funding infrastructure spending by cutting gasoline subsidies, while the central bank has been effective in curbing living costs and stabilizing the Indonesian rupiah.
A government report on Friday showed the current-account deficit narrowed to US$4.7 billion ($6.5 billion) in the first quarter from US$5.1 billion in the final quarter of 2015 as it paid less to import oil. Bank Indonesia may leave its benchmark policy rate unchanged on May 19 after cutting it 75 basis points in the first quarter, according to Bloomberg Intelligence. Inflation cooled to 3.6% in April, the lower half of its 3 to 5% target range.
When asked about the likelihood of an upgrade this year, S&P spokeswoman Emi Nakata said its views on Indonesia’s rating haven’t changed, without providing further comment.
While yield spreads for Indonesian corporate bonds have tightened amid improved investor sentiment, companies face refinancing pressure amid weakness in the consumer and property sectors, Xavier Jean, S&P’s senior director, corporate ratings said during a call with journalists on May 12.
"We are not yet seeing a widespread pickup in operating conditions for the corporate sector," said Jean.
Indonesia’s economy grew 4.9% in the first quarter, slowing from 5% during the previous three months, hit by plunging prices for the country’s commodities like palm oil and coal. A total of seven Indonesian companies have defaulted on US dollar bonds in the past five years, including Berau Coal Energy Tbk and Bakrie Telecom Pte, according to data compiled by Bloomberg.
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