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Business Times
7 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
Bloomberg
7 days ago
- Business
- Bloomberg
Global Funds Weigh Whether Indonesia Market Rebound Was Too Fast
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 PT Mirae Asset Sekuritas Indonesia warns that the recent rally in equities has run ahead of fundamentals. Indonesia's currency has climbed some 4% since hitting an all-time low in April, while sovereign notes recorded the biggest monthly inflow this year in May.
The Guardian
24-05-2025
- Business
- The Guardian
Trump's latest Wall Street showdown pushes investor scepticism to the brink
Donald Trump calls his tax and spending plans 'big, beautiful,' and a once-in-a generation opportunity to bolster the prosperity of the US economy. The bond market disagrees. In his latest showdown with Wall Street, after the turmoil unleashed by his 'liberation day' tariff announcement last month, global financial markets are rattled again, this time by the US president's One Big Beautiful Bill Act. Plans to hit the EU with 50% tariffs on all imports are adding to the investor headache. Reflecting growing unease, the yield – in effect the interest rate – on 30-year US government bonds has risen above 5%, and is threatening to reach the highest level in 18 years. Meanwhile Moody's, a leading credit ratings' agency, relied on by big investors, last week stripped the US of its top-notch triple-A score. Central to the concern is the US's so-called 'twin deficit' position – running a simultaneous budget deficit (when public spending exceeds revenues) and trade deficit (when imports outstrip exports) – and the worry that Trump's policies will stoke inflation and sink the US economy into recession. Mark Dowding, the chief investment officer at RBC BlueBay Asset Management, a hedge fund, said the president seemed content to 'keep calm and carry on' despite growing investor unease – which could test markets further. 'Laffer curve economics inspired thinking in the US is being met with increased scepticism by bond market investors, who are concerned at an alarming rise in the debt trajectory,' he said. 'Essentially, Washington has thrown down the gauntlet to the bond market.' Under the One Big Beautiful Bill Act, trillions of dollars in tax cuts which Trump first introduced in 2017 – but had been due to expire at the end of 2025 – will be extended, offset by controversial cuts to some areas of spending, including Medicaid, the healthcare scheme for those on low incomes. The non-partisan Committee for a Responsible Federal Budget estimates the measures will increase the US's annual deficits to $2.9tn (£2.1tn) (6.9% of US GDP) by 2034, or to $3.3tn (7.8% of GDP) if some time-limited policies are made permanent. Running these large annual deficits will add to America's outstanding debt pile held by the public, which stood at $28.2tn in 2024 (97.8% of GDP) and was already on track to reach almost $50tn by 2034 (117% of GDP). However, Trump's measures could add a further $3.3tn on top by 2034, taking the debt-to-GDP ratio to 125%, or $5.2tn if made permanent (129%). Economists argue over the dangers of high debt levels. Several countries have debt ratios above 100%, including Japan, at more than 260%, and there is no precise, agreed-upon danger zone. Unlike households, governments have the power to print currencies, change tax and spending plans, and set laws. Comparisons to a family credit card being maxed-out are meaningless. Borrowing can help governments, if the proceeds lay the groundwork for stronger economic growth in future. However, persistent deficits and ever-rising debt levels can erode investors' confidence in a country's ability to make good on its IOUs. This can further push up borrowing costs, as investors demand higher premiums. Higher interest rates drive up debt-servicing bills, while high volumes of debt can 'crowd out' more productive private investment in favour of parking cash in government bonds. For decades, the US has enjoyed cheaper borrowing costs relative to many other countries, particularly given the scale of its annual deficits and vast outstanding debt pile, in what has become known as Washington's 'exorbitant privilege'. However, investors are warning patience is running out, as Trump's increasingly erratic policymaking trashes the postwar consensus that buying US assets is the safest possible place to put your money. Trump could argue his tariff policies will bring in revenues to offset the cost of tax cuts, and that his vast giveaways could stimulate spending in the economy by putting more money in the pockets of businesses and consumers. However, the nonpartisan Tax Foundation thinktank believes US tariffs in effect today, if left in place permanently, could raise $2.1tn between 2025 and 2034, but would reduce long-run GDP over the same period by 0.6% before retaliatory measures are taken into account. 'Concerns about US borrowing aren't going away. And for all the angst about the tax and spending bill, the irony is that it will make little tangible difference to economic growth rates over the next couple of years,' analysts at ING Bank wrote in a note to clients. On the flip side, the thinktank also says Trump's tax cuts could increase long-run GDP by 0.6%, but would cost $4.1tn in forgone revenue over the same period. While there are gyrations in the bond market, there are also consequences for the world at large. This is because the US bond market acts as a critical reference point for other securities around the globe, meaning rising US borrowing costs will drag other government interest rates higher. In the UK, 30-year bond yields have hit their highest since the late 1990s this year, adding to complications for the British chancellor, Rachel Reeves, by pushing up debt servicing costs. Borrowing costs are rising in Japan, amid inflation concerns and as the country's central bank unwinds years of loose monetary policy. As the largest foreign holder of US Treasuries, investors may start pulling money from the US market in favour of rising yields on domestic bonds. After rapid growth in government debt levels worldwide – driven higher after the economic shocks of the 2008 financial crisis, the Covid pandemic, and now Trump's trade wars – the challenges are only mounting.
Yahoo
19-05-2025
- Business
- Yahoo
U.S. Budget Is Bigger Issue Than Ratings Downgrade; Treasury Yields Rise Further
1208 GMT – Moody's Ratings' downgrade of the U.S. to Aa1 may create near-term volatility, but the U.S. budget is an even bigger concern, says RBC BlueBay Asset Management's Russel Matthews. 'We are at a critical point with the progression of the 10-year plan for the U.S. budget through Congress,' the senior portfolio manager says in a note. RBC BlueBay says there seems to be limited desire or ability for U.S. politicians to present a roadmap for a serious reduction in the fiscal deficit.
Bloomberg
19-05-2025
- Business
- Bloomberg
Vanguard, RBC BlueBay Scoop Up Battered 30-Year Japanese Bonds
The selloff in Japan's long-dated bonds is drawing international investors, who expect the securities to rebound as global trade turmoil abates. Japanese 30-year government borrowing costs approached 3% this week for the first time in almost 25 years, and there are fears of further rises as tariff-linked uncertainty sends investors toward shorter-dated bonds. Yet, some funds, including Vanguard and RBC BlueBay Asset Management, see the moves as a green light to buy more of the super-long securities.
