JAKARTA: BlackRock Inc remains a fan of long-dated Indonesian government bonds, saying the high-yield debt offers enough risk compensation in the face of local political instability.
The world’s largest asset manager has recently increased holdings of such bonds due in 10 to 15 years, shifting positions from shorter tenors, said Navin Saigal, BlackRock’s head of fundamental fixed income for Asia Pacific.
The additions resulted from the longer-tenor notes’ milder reaction to Bank Indonesia’s surprise interest rate cut and the Federal Reserve’s dovish rhetoric last month, he said.
“The recent headlines, in and of themselves, have not caused us to change any positions in Indonesia,” Saigal said. “While I certainly think the situation warrants monitoring, it reinforces the notions that having sufficient risk premium, or margin of safety, in an investment is of utmost importance, and that a diversified approach is critical.”
BlackRock’s latest endorsement of Indonesian bonds came after the Southeast Asian nation suffered further stock and debt selloffs, following fresh weekend protests against rising living costs and inequality.
Political instability, which is also affecting Thailand now, is prompting a rethink among many investors about the region’s economic outlook and the benefits of further monetary easing by local central banks.
President Prabowo Subianto cancelled a trip to China following the deadly unrest as demonstrators targeted the homes of Indonesia’s finance minister and several lawmakers. On Sunday, Prabowo announced parliament will remove hefty lawmaker perks that had been a source of ire for many protesters.
Despite the latest market turbulence, Saigal said a “real yield” of about 3% on Indonesian bonds is “a decent margin of safety.”
Yields on the Southeast Asian country’s 15-year government paper have risen around seven basis points since the selloff began on Friday, erasing most of their initial decline since Bank Indonesia’s last rate cut.
The additions of Indonesian long debt were for the US money manager’s global unconstrained funds and Asia local currency bond fund, according to Saigal, who is a portfolio manager for both.
BlackRock has owned Indonesian bonds for “the last 12-18 months” in its global unconstrained fixed income funds, where Indonesia makes up 5%-15% of a basket of Asian debt. The firm is overweight Indonesia in its Asian local-currency bond portfolios.
“While the tensions are probably not helpful for sentiment in the short term, I would reiterate that foreign ownership of Indonesian bonds is already at multi-decade lows,” Saigal said. “It is also possible that the tensions create and catalyze an opportunity for positive structural change, that could be beneficial for the country long term.”
Indeed, finance minister Sri Mulyani Indrawati pledged to improve the government’s policies on Monday, a signal of reassurance to market watchers that she’ll continue to manage the economy. Investors view her as a safe and steady hand to maintain fiscal discipline.
International investors have poured US$2.05 billion into Indonesia’s government bond market so far this quarter, on track for the largest inflow since the third quarter of 2024.
Despite the latest inflows, foreign ownership remains thin by historical standards: it was about 15% of the market as of Aug 28, down from 39% at the start of 2020, according to data compiled by Bloomberg.
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