Jakarta – Deutsche Bank Indonesia projects that investors will be lured back to the country's domestic capital market, given the stronger rupiah and supportive interest rates.
The local arm of the German investment bank has forecast that the rupiah will strengthen during the first half of the year, in line with potential economic improvements due partly to the nationwide vaccination program. It also expects Bank Indonesia (BI) to maintain the benchmark interest rate at around 3.75 percent this year after making five rate cuts in 2020 to buoy the economy amid the COVID-19 health emergency.
As a result, strategists at Deutsche Bank Indonesia "believe that Indonesia offers one of the better volatility-adjusted carry propositions in emerging markets", it said in a statement on Jan. 13
"Indonesia remains one of the most attractive destinations for emerging markets investors allocating capital to Asia," Deutsche Bank chief country officer Siantoro Goeyardi said in the statement.
The government has been aggressively issuing bonds to finance its Rp 695.2 trillion (US$49.4 billion) COVID-19 stimulus and to plug the soaring deficit amid the epidemic's impact on tax revenue.
As of December, the government had raised Rp 958.6 trillion in debt financing through bonds and loans, marking a 143.8 percent increase from the same period in 2019. Meanwhile, data on Dec. 21, 2020 showed that foreign investors held Rp 997.41 trillion in rupiah-denominated bonds, 6 percent less than the full-year figure of Rp 1.06 quadrillion in 2019.
Foreign investors around the world dumped risky assets early last year, including in Indonesia, as coronavirus fears caused market volatility and made safe haven assets more lucrative.
Meanwhile, country's foreign currency bonds were "the most traded emerging markets debt assets globally, and valuations are forecast to benefit this year as investor capital returns to the region in search of yield", Deutsche Bank said.
The government raised $3 billion and 1 billion euros in sovereign bonds issued through four tranches in January 2020.
Earlier this month, the Finance Ministry named Deutsche Bank Indonesia the best primary dealer for rupiah-denominated government bonds for the second consecutive year. Deutsche Bank is the only foreign bank to be awarded the recognition for its market-making expertise in bond trading.
"Winning this title for the second year running cements Deutsche Bank's position as the leading foreign bank for market-making local currency government bonds. It underscores the strength of our Indonesia platform which is a critical part of our global emerging markets franchise," Siantoro said in the statement.
"It is testimony to the key role we continue to play in supporting the liquidity and depth of the local currency government bond market," said the bank's Indonesia local markets head, Francis Soetopo. (dfr)