Foreign investors have increasingly piled into Indonesian sovereign bonds, especially as the country's economy grows and its fiscal and monetary policies stabilize.
The Indonesian government has implemented a series of reforms aimed at improving the investment climate. Policies like the Omnibus Law, which streamlines regulations and simplifies processes for foreign businesses, demonstrate Indonesia's commitment to creating a more foreign-investor-friendly environment. A transparent and welcoming policy landscape makes Indonesian assets more attractive.
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We also believes that US election volatility influenced Indonesian government bond buying as it often triggers a flight to safety, leading investors to shift from emerging markets to safer assets like US Treasuries. However, if the US maintains low rates or shows support for international trade, this can keep foreign interest in higher-yielding emerging market bonds, including Indonesia's.
That said, this time around might be slightly different. Despite recent interest rate cut by the Fed, 10 year US Treasury yield still moves higher. We believe this was mainly caused by several central banks who sells its UST ownership and switch its foreign reserve in gold.
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As Indonesian bond yields decline, fixed-income returns become less attractive, potentially redirecting investor attention towards equities, which may offer better growth prospects. Stocks that have already experienced significant outflows could be especially appealing; their lower prices might present buying opportunities if fundamentals are solid. These outflow-affected stocks may be undervalued, offering a favorable entry point as capital shifts from bonds to equities. Investors anticipating this trend might start researching quality stocks in sectors likely to benefit from increased liquidity and economic growth, positioning for potential gains as equity demand rises.
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BBRI, BMRI, and BBCA are worth watching for long positions as they recently experienced heavy outflows, which may have made their stock prices more attractive. With Indonesia’s current pro-growth policies, including reforms to boost investment and economic activity, these banks are well-positioned to benefit from increased loan demand and economic expansion. As the country focuses on growth, bank stocks could see a recovery, driven by improved earnings potential, stronger consumer lending, and rising investor confidence in Indonesia’s economic outlook.
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