Indonesia bonds more attractive than India’s, say funds

SINGAPORE: In the battle between Asia’s two highest-yielding major bond markets, Indonesia once again appears poised to gain the upper hand over India.

Global money managers are increasingly shunning Indian securities as Narendra Modi’s government hands out billions of dollars in tax cuts and subsidies to boost the prime minister’s appeal ahead of elections, blowing through the nation’s deficit target in the process.

In contrast, Indonesia’s improving fiscal status and aggressive monetary policy stance in the face of global headwinds have burnished the nation’s assets in the eyes of investors.

Comparison between two of emerging Asia’s two biggest economies are common given their similarities, and that’s especially true this year. Both run current-account deficits, are highly sensitive to shifts in United States interest-rate policy, and face key elections this year.

“Indonesian bonds look more attractive given that yields are high, the economy is likely to do well and finances may be on a better relative positioning than India,” said Manu George, Schroder Investment Management Ltd’s director of fixed income, here.

Assets in both countries will be tested this week as India reports key inflation and factory output figures, while Indonesia releases trade data.

The yield on India’s widely traded 2028 bonds surged 13 basis points on February 1, the day Modi’s administration announced plans to sell a record 7.1 trillion rupees (RM406 billion) of securities to finance the fiscal deficit for the year beginning April 1.

Not even a surprise interestrate cut by the nation’s central bank last week has been able to fully stem the losses, as supply concerns weigh on investor appetite. Yields on similar-maturity Indonesia notes have declined 13 basis points this month.

Even with their recent rally, Indonesian 10-year securities still pay about 7.88 per cent, the highest in Asia. That’s helped woo about US$2 billion (RM8.14 billion) in foreign portfolio investment this year, compared to outflows of around US$743 million for India, according to data compiled by Bloomberg.

“On a risk-reward basis, Indonesia probably looks more interesting than India going into elections,” said Timothy Ash, a strategist at BlueBay Asset Management in London. A “better public finance profile and very orthodox monetary and fiscal policy setting” bodes well for Indonesian assets.