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Manulife sees big opportunity in rupiah assets

Publication Date : 27-03-2014

 

The upward trend of global interest rates will unlikely affect investors’ appetite for Indonesian assets, which should remain the region’s most lucrative amid problems engulfing other emerging economies, Canada-based financial services giant Manulife says.

The upward trend of interest rates in the US — which theoretically should make dollar assets more attractive — would not necessarily prompt fund managers to withdraw their investments from Indonesia, according to Manulife Asset Management, which oversees US$263 billion in assets globally.

“The impact [of higher US interest rates] on Indonesia will be a lot less than, let’s say, in June last year,” Manulife’s senior managing director for fixed-income investments, Endre Pedersen, said during a press briefing on Wednesday.

“There’s still quite a lot of interest rate differential between Indonesia and the US.”

In June last year, then-US Federal Reserve chairman Ben Bernanke dropped the first hint that the US would tighten its ultra-loose monetary policy, spooking investors who were concerned about tighter global liquidity and ultimately triggering a massive sell-off of assets stashed in “high-risk” economies, such as Indonesia.

But, according to Manulife’s chief investment officer, Christopher Conkey, Indonesia was now on a better footing against the threat of capital outflows, thanks to prudent policy-making and improved economic fundamentals.

“Which countries do we like in Asia Pacific? Three countries stand out: China, Australia and Indonesia,” Pedersen said.

He explained that Indonesia’s fixed-income assets were particularly attractive due to favorable credit spreads, in addition to the stabilizing rupiah and declining inflation, which also boosted bondholders’ returns.

Fund managers have rushed to buy rupiah assets again this year, citing a narrower current-account deficit and declining inflation.

Indonesia’s credit default swap (CDS) — an indication of a country’s investment risk — stood at 187 basis points (bps) on Wednesday, a sharp decline compared to the 226 bps at the end of January.

The Jakarta Composite Index (JCI) and the yields on the government’s 10-year bonds have become the strongest performers among emerging countries, with the former growing by 10.65 per cent year-to-date, and the latter declining by 22.1 basis points.

Strong foreign inflows in the stock and bond markets have made the rupiah appreciate by 7 per cent year-to-date and become Asia’s best-performing currency in 2014 thus far.

Manulife Asian equities head Ronald Chan said he was maintaining an “overweight” stance on Indonesian equities, with property and finance sectors being particularly attractive.

However, he warned fund managers of the so-called “expectation gap” vis-à-vis the next government, advising them against taking an overly bullish stance on the country.

“I guess in the second half of this year, we will start reviewing the (overweight) position,” Chan noted.

“I expect the rally to come before the elections, but once the elections are over, then people will say: ‘Okay, what’s next? What should the money go into?’”

 

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