Indonesia Bond Market in 2019: 4 Things to Watch Out

Opportunities Lies in Uncertainty

The world is in worrisome. Brexit, US-China trade war and the recession in Italy create uncertainty in financial market. Not to mention the warning from inverted yield curve, all of that bring fear to financial professional and investors. People tend to take their money out of the market and look for some good signal. Is it that bad to invest today?

Brexit and trade war showing that there is uncertainty in global economics. Theresa May is still struggling with her proposal while Trump-Jinping meeting rarely bring significant to announce. In other words, there will be too much volatility in developed market.

Emerging market, in the opposite, offers better outlook at the same time. The Fed keeps its interest rate, and more likely won’t increase the rate in 2019. Investors would look for more attractive country to invest in and ASEAN countries, especially Indonesia, had the edge to be the global investors’ top choice.

Let me get it straight here, this piece won’t talk much about Indonesia’s equity market. The focus will be the bond market since it offers less volatility in the middle of global uncertainty.

4 Things to Watch Out in Indonesia Bond Market

Investing in Indonesia bond market is an attractive option. There 5 things to answer the “why” question.

Better bond yield entry level compared to early 2018

This graph above shows that INDOGB Performance Has Beaten JCI Index year-to-date. It means it is a good time to put the money in bond because it offers better return since the beginning of this year.

BI 7-Day Reverse Repo rate near peak level

The Fed sounds more dovish and is expected to keep this stance in the full year. This sentiment, combined with narrowing CAD expectation, and manageable inflation, will stabilize rupiah currency in 2019 and interest rate is less likely to happen.

Prudent fiscal and monetary policies will be positive for sovereign rating outlook

This table show it right away. Indonesia sovereign bond has BBB- rating and it offers one of the highest real yield in emerging country.

More long term foreign investors in INDOGB market than “hot money”

Foreign investors are the biggest net buyer of Indonesia bond issuance. The 2019 gross bond issuance target is projected to go higher by Rp51tn (+6.6% yoy) than in 2018. The Government already issued Rp276.1tn gross ytd or 33.4% of full year target, showing government is already in the right track. However, domestic buyer is expected to grow along with he Government’s plan to reduce withholding tax for bond instrument.

Conclusion: Opportunity Lies in Uncertainty

INDOGB index is expected to continue its growth inline with foreign fund inflows. Most of the money inflows are still coming to medium to longer tenors. This stance is backing up by these two strong catalysts: The Fed got more dovish and stable year-to-date domestic inflation.