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Business Times
3 days ago
- Business
- Business Times
Global funds weigh whether Indonesia market rebound was too fast
[JAKARTA] Indonesia's financial markets have bounced back after a torrid few months, sparking a debate on whether the rally can last. RBC BlueBay says any inflows into Indonesian bonds will remain tactical until there's more clarity on how the government will fund its growth plans, while Mirae Asset Sekuritas Indonesia warns that the recent rally in equities has run ahead of fundamentals. Indonesia's currency has climbed some 4 per cent since hitting an all-time low in April, while sovereign notes recorded the biggest monthly inflow this year in May. The signs of caution about Indonesia's market recovery speak to global uncertainties from US President Donald Trump's rapidly evolving trade policy. They also reflect persistent worries about fiscal discipline in South-east Asia's largest economy and questions over how sovereign wealth fund Danantara will operate. 'I wouldn't say there is a rethink yet on rupiah assets,' said Zhenbo Hou, portfolio manager at RBC BlueBay in London. 'Risks around Indonesia have not changed since the first quarter. A lack of clarity around funding Danantara and how it intends to implement investment remains key.' Debate is growing on whether Indonesian assets have reached an inflection point after initial signs of a recovery. Global funds snapped up US$1.5 billion of Indonesian government bonds in May while the rupiah gained 1.9 per cent – the best performance for both assets in 2025. Foreign inflows into the nation's equities turned positive for the first time since September last month as the benchmark Jakarta Stock Exchange Composite Index (JCI) entered a bull market. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up But some analysts warn that the gains will fizzle out as recent trade and manufacturing data suggest that Indonesia's economic momentum remains lacklustre. 'The JCI rally happened too fast and has yet to reflect our economic fundamentals,' said Rully Arya Wisnubroto, head of research and chief economist at PT Mirae Asset Sekuritas. 'We expect GDP growth in the second quarter to be lower than the first quarter's. We recommend maintaining a cautious stance in the equity market.' A lot of the jitters are centred around the government's finances, reflecting concerns that have roiled bond markets worldwide in recent weeks. Indonesian President Prabowo Subianto has implemented a free lunch programme for students that will cost US$30 billion a year, the equivalent of 14 per cent of the government's entire 2024 budget. To pay for that, he cut back spending in other areas such as travel and infrastructure projects. State revenue collections were 12.4 per cent lower for the January to April period compared to a year earlier, while expenditures dropped 5 per cent, according to Bloomberg's calculation based on budget figures from the same period in 2024. Analysts have cautioned that Prabowo's policies may push Indonesia's budget deficit closer to its legal limit of 3 per cent of gross domestic product. To top it all off, there are worries that Danantara, whose board includes a number of individuals with political and business links, could make investment decisions that are influenced by politics. The Prabowo administration has sought to address these concerns after Moody's Ratings and Fitch Ratings warned that a lack of clarity surrounding the fund's operations and governance raises potential risks to the fiscal outlook. The gains in Indonesian assets come amid a broader pivot away from the US as worries about Washington's budget shortfall and the impact of tariffs on growth deter investors. A Bloomberg US dollar gauge has fallen over 8 per cent from the year's high reached in February, helping to make emerging-market assets more attractive. Rupiah bonds have also been boosted by Bank Indonesia's monetary easing, and Allianz Global Investors sees policymakers reducing borrowing costs by at least another 25 basis points. The money manager remains bullish on the notes although it's watchful of developments on the fiscal front, according to Ze Yi Ang, a senior portfolio manager for Asian fixed income in Singapore. But some market watchers are wary even though a US$1.5 billion stimulus package is set to kick in this month, as authorities look to boost consumption to help the economy grow about 5 per cent in the second quarter. The expenditure 'is unlikely to fully offset underlying economic pressures on earnings', Malayan Banking analysts Jeffrosenberg Chenlim and Jocelyn Santoso wrote in a Jun 3 note. 'Markets may also be underpricing the risk of a more aggressive tariff stance by President Trump amid growing criticism of his perceived indecisiveness. In light of these risks, we recommend clients consider tactical profit taking.' BLOOMBERG
Yahoo
10-03-2025
- Business
- Yahoo
Investors Dump Indonesia Stocks as Prabowo Flexes Market Muscles
(Bloomberg) -- An unprecedented accumulation of power in Indonesia's corporate landscape is fueling investor concern about political influence and transparency in Southeast Asia's biggest equity market. NJ College to Merge With State School After Financial Stress Trump Administration Plans to Eliminate Dozens of Housing Offices Where New York City's Zoning Reform Will Add Housing Buffalo's Billion-Dollar Freeway Fix Is on Ice, But Not Because of Trump Inside the 'Not Architecture' of High Line Designers Diller Scofidio + Renfro Newly launched sovereign wealth fund Danantara — which has a direct reporting line to President Prabowo Subianto — announced last month it would take over management of seven state-owned enterprises. Its holdings include three of the nation's biggest banks, with total assets of more than $340 billion. Worries about the deal sent shares tumbling by the most in weeks, pressuring a stock market that's already one of the world's worst performers this year. While sovereign wealth funds are commonplace across Asia, the swift consolidation of assets is offering investors an early glimpse into Prabowo's vision for economic governance just months after he took office. The fund would control firms that make up more than one-fifth of the benchmark Jakarta Stock Exchange Composite Index. Plans for Danantara to eventually take in all of the dozens of state-owned firms would mean direct control of assets equaling roughly half of the country's gross domestic product. 'Uncertainty over the new government's policies, in particular the formation of Danantara, could keep investors away for now,' Selvie Jusman, an analyst at Morgan Stanley, wrote in a recent note. The upheaval comes at a critical time. Since hitting a fresh record in September, Indonesia's $700 billion stock market has stumbled as a stronger dollar and global trade tensions send investors fleeing from emerging markets. The JCI is down 6% this year, underperforming most global peers. Last month, the rupiah touched a five-year low as a weakening economy drags on the currency. Goldman Sachs Group Inc. downgraded the nation's stocks to market weight from overweight on concerns about weaker earnings, domestic policy risks including SOE bank profitability and a wider fiscal deficit, they said in a note late Friday. Danantara, or Daya Anagata Nusantara Investment Management Agency, will have initial capital of $20 billion and eventually have more than $900 billion in assets under management, according to Prabowo, putting it among the world's largest sovereign wealth funds. The president has indicated that funding will come from a mix of budget cuts and increased state firm dividends. The wealth fund is seen as a key tool to help Prabowo achieve his strategic goals and return Indonesia to the 8% economic growth levels it last posted in the mid-1990s. Authorities are also hoping it will play a secondary role of boosting foreign investments. Danantara did not respond to a request for comment. For years, investors have lamented that volatile and illiquid stocks have made long-term investments a challenge in Indonesia. That's forced global money managers to concentrate their investments into a handful of financial companies, which tend to be larger, have more free float and broader shareholder bases. Danantara's entry has suddenly complicated that thesis. The three banks set to come under the wealth fund's control — PT Bank Mandiri Persero, PT Bank Negara Indonesia Persero and PT Bank Rakyat Indonesia Persero — are popular investments among money managers thanks to their profitability and low valuations. Investors worry that any changes in strategy might hurt margins, particularly given a tough year ahead as weak commodity prices hit loan growth. Prabowo has said that he would boost SOE dividend payouts to finance Danantara. Already, foreigners have headed for the exit, offloading a net $266 million of Mandiri shares in February, according to data compiled by Bloomberg, the most since records going back to 2020. In total, they've sold about $1.3 billion of Indonesian equities on a net basis so far this year. 'Investors are worried about the sustainability of the dividend payout and also will the SOE's strategy be changed to be less profit oriented,' said Jeffrosenberg Chenlim of Maybank Investment Bank Bhd. More details would help improve market sentiment, he added. State firms used to be supervised by the Ministry of State-Owned Enterprises, while dividends were paid largely to state coffers. Danantara's operating model is different in that it will receive all SOE dividends and can leverage their assets for funding, including through bond issuance. A recently revised law means it will report to the president, sidestepping the finance ministry and the SOE ministry. There are other concerns brewing. Prabowo allies dominate the fund's management, raising questions about state overreach. Risks over strategy, capital allocation and possible off-balance sheet spending add to the list of worries, according to Citigroup Inc. analysts. While the launch looks positive overall, the fund's success will depend on factors including its ability to attract foreign capital and improve SOE efficiency, the bank added. Danantara's full leadership lineup, including various advisory boards, is still being finalized and should be announced in coming weeks, according to local media. For now, investors are in wait-and-see mode, choosing more of a risk-off stance until more details are announced. 'Institutionalizing governance and focusing on returns above the cost of capital is the right direction, but how it balances strategic national interests with commercial discipline remains to be seen,' said Mohit Mirpuri, a fund manager at SGMC Capital Pte. 'If done right, it could enhance long-term SOE valuations rather than just extracting dividends. For now, it's one to watch rather than assume success.' --With assistance from Claire Jiao and John Cheng. (Updates with Citi comment in third to last graph) How Natural Gas Became America's Most Important Export The Mysterious Billionaire Behind the World's Most Popular Vapes Greenland Voters Weigh Their Election's Most Important Issue: Trump An All-American Finance Empire Drew Billions—and a Regulator's Attention Germany Is Suffering an Identity Crisis 80 Years in the Making ©2025 Bloomberg L.P.
