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Foreign investors dump Indonesian shares for bonds as global slowdown looms

Jakarta Post - September 26, 2019

Riska Rahman, Jakarta – Foreign investors are preferring Indonesian bonds over stocks amid signs of slowing global economic activities, Financial Services Authority (OJK) data shows.

Foreign net buys at the bond market reached Rp 16.7 trillion (US$1.17 billion) last week, while bond yields strengthened by 8.9 basis points (bps) since the beginning of the month up until Sept. 20. Meanwhile, the country's government bond yields also declined by 76.4 bps.

However, the country's equity market was gloomy as non-resident investors took as much as Rp 5.4 trillion of their money out of Indonesia's stock market during the same period. As a result, the Jakarta Composite Index (JCI), the main gauge of the Indonesia Stock Exchange (IDX), dropped by 1.5 percent since the beginning of the month to 6,231.5.

"Despite the decline, our stock market is still strong and had strengthened by 0.6 percent throughout this year," OJK spokesperson Anto Prabowo said in a statement following the OJK's monthly board of commissioners meeting. "Advanced countries' accommodative policies would keep pushing non-resident investors to enter into emerging countries' financial markets, including that of Indonesia."

A global slowdown has been haunting the world's economy this year as inflation softened in many countries and weakening global trade was triggered by protectionist measures taken by some advanced countries. This situation pushes central banks to take a more accommodative stance to anchor growth.

The OJK projected the central banks would maintain this stance until year-end.

"On the other hand, the weakening commodity prices amid the United States-China trade tensions that remain high will add to the downside risks of the future economic growth, including that of emerging markets," the statement said.

However, the OJK expressed optimism that both the domestic stock and bond markets could still lure foreign inflows as investors continued to buy Indonesian assets throughout this year. The stock market recorded a net buy of Rp 53.9 trillion this year and the bond market saw Rp 133 trillion in foreign money coming into it.

"Indonesia's financial services sector is still stable amid signs of decreasing global trade volumes and business confidence contractions," Anto said.

Source: https://www.thejakartapost.com/news/2019/09/26/foreign-investors-dump-indonesian-shares-for-bonds-as-global-slowdown-looms.html