Bond market bustling this year: Analysts<\/p>\n
A'an Suryana, The Jakarta Post, Jakarta<\/p>\n
The domestic bond market is expected to thrive this year as
\ninvestors are shifting funds from bank deposits due to a lower
\ninterest rate environment, and from the volatile stock market.<\/p>\n
\"It is likely that people will invest more in bonds this
\nyear,\" Raden Pardede from Danareksa Research Institute told The
\nJakarta Post last week.<\/p>\n
According to Pardede, people would eventually reduce their
\nexposure in stocks due to their declining values as equity
\nmarkets worldwide fall together with plunges in the U.S. market.<\/p>\n
\"The decreasing value of stocks has made people refrain people
\nfrom investing in the stock market, fearing that they might lose
\nmore money,\" Raden said.<\/p>\n
Investing in bank deposits is not so attractive either amid
\ndeclining interest rates as Bank Indonesia has been trying to
\nguide its benchmark interest rate lower.<\/p>\n
The interest rate on the one-month Bank Indonesia SBI
\npromissory notes has declined to around 14.7 percent from over 17
\npercent earlier this year.<\/p>\n
In comparison, bonds are now offering coupon rates of between
\n17 percent to 18 percent, while bank deposit rates hover at
\naround 13.5 percent.<\/p>\n
\"Therefore, investors have begun to change preferences and are
\nlooking more at investing in bonds,\" said Raden.<\/p>\n
Pension funds have reportedly increased their exposure in
\nbonds also. For instance, PT Dana Pension Jasa Marga, the
\npension unit of state-owned toll road operator PT Jasa Marga, is
\nplanning to invest up to 50 percent of its total funds in bonds
\nthis year, compared to 45 percent or around Rp 45 billion
\npreviously.<\/p>\n
According to data from the Surabaya Stock Exchange (BES),
\ntransaction volume on bonds issued by corporations surged to Rp
\n2.50 trillion in the January to July period this year, compared
\nto only Rp 1.12 trillion for all of last year.<\/p>\n
Transactions on government bonds were also robust as shown by
\nthe January-July period in which the volume had already reached
\nRp 60.96 trillion compared to Rp 64.69 trillion for all of 2001.<\/p>\n
The government issued some Rp 430 trillion worth of bonds in
\nthe late 1990s to bail out ailing banks. A portion of the bonds
\nare now being traded in the secondary market.<\/p>\n
Raden said that transaction volume on dollar-denominated bonds
\nfor the January-July period of this year had already reached
\nUS$555 million, compared to $541 million in 2001.<\/p>\n
Analysts said that investors have been keen on investing in
\ndollar-denominated bonds because they often carry a coupon of 10
\npercent to 11 percent, compared to the interest rates of dollar
\nbank deposits which average around 1.5 percent.<\/p>\n
The recent bond issue by giant instant noodle maker PT
\nIndofood Sukses Makmur got a strong response from investors,
\nprompting the company to raise the size of the issue to $280
\nmillion from the initial plan of $200 million. The dollar bonds
\ncarry an interest rate of 10.3 percent.<\/p>\n
The stronger investor appetite for bonds has also encouraged
\ncompanies to issue bonds to raise cash for working capital, said
\nAchmad Fadjar, a senior treasury officer at state-owned Bank
\nMandiri.<\/p>\n
Retailer PT Matahari Putra Prima Tbk. and multi finance firm
\nPT International Federal Finance are among the companies which
\nwill soon issue bonds.<\/p>\n
According to data from BES, Matahari will carry out a book
\nbuilding process on Aug. 20, with a total bond issue estimated at
\nRp 300 billion.<\/p>\n
International Federal Finance is planning to issue some Rp 200
\nbillion worth of bonds.<\/p>\n
\"If the bonds are sold out, it could also be seen as evidence
\nthat investor confidence in the local corporate sector is turning
\naround,\" he said.<\/p>\n
Not only domestic investors, foreign investors are also
\nincreasingly attracted to invest in the Indonesia bond market.<\/p>\n
Fauzi Ichsan, an economist at the Standard Chartered Bank,
\nsaid that after the Wall Street downturn, investors have been
\nchasing bonds outside the U.S. market, including Indonesia.<\/p>\n
But Fauzi was quoted by the Kontan weekly as saying that the
\nforeign hedge funds and fund managers entering Indonesia were
\nonly for the short-term investment due to lingering uncertainties
\nhere.<\/p>\n
Fauzi said that a perception of a corrupt legal system was
\nstill a major stumbling block for investors to invest in
\nIndonesia.<\/p>\n
Despite the bustling bond market, analysts warned investors to
\nbe prudent in investing their money in the market.<\/p>\n
\"Investors should invest only in bonds, which are being
\noffered by companies with good fundamentals,\" said Pardede.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bond-market-bustling-this-year-analysts-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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