HSBC sees stronger bond market this year

HSBC sees stronger bond market this year

Rendi A. Witular, The Jakarta Post, Jakarta

The country's bond market this year is predicted to grow by
between 20 percent and 50 percent due to strong demand from local
and overseas investors, an expert at HSBC Bank said.

HSBC director of debt market Radianto Kusumo said on Thursday
that local investors were now seeking better return-on-investment
alternatives amid declining interest rates of bank time deposits
and the volatile stock market.

"Investors are running out of safer and more lucrative
investment options, thus they prefer to put their money into this
sector. Bond volume and transactions for this year will surge by
at least 20 to 50 percent," said Radianto.

According to data from the Surabaya Stock Exchange, the market
capitalization of the domestic bond market last year jumped to
around Rp 419.49 trillion (US$47 billion) from Rp 83.48 trillion
as both companies and the government rushed to issue bonds amid
strong investor sentiment.

The surging bond market, analysts said, had also become one of
the main factors causing the recent surge in the exchange rate of
the rupiah against the U.S. dollar, which earlier this week
strengthened to a 10-month high of around Rp 8,600 per dollar.

As foreign investors turn their eye to domestic bonds offering
interest rates of 10 percent to 18 percent, compared to U.S.
bonds offering 4 percent, they bring in dollars and exchange them
for rupiah.

The government had also been successful with its Rp 2.7
trillion bond issue last month, which was three times
oversubscribed.

However, despite the booming bond market, some are worried
particularly about the lack of supporting regulations.

Radianto said that fund managers would face difficulties if
investors rushed to cash in before the bonds reached maturity.

He said that this would create huge losses for fund managers,
so the authorities should sit together with the market players to
design a better mechanism.