www.thejakartaglobe.com - Indonesia’s bond market is showing President Susilo Bambang Yudhoyono’s about-face on fuel subsidies has curbed investor concern over inflation this year, while doing nothing to reduce longer-term price-increase expectations.
Yields on 8.8 percent Islamic notes due in April 2014 have fallen 16 basis points since the March 30 subsidies decision to 2.37 percent on Friday, compared with a drop of four basis points to 3.60 percent for 4 percent Shariah-compliant securities due in November 2018, according to data compiled by Bloomberg. The yield premium on the longer-dated bonds was 136 basis points on April 11, the most since March 6. (source)
Batavia Prosperindo Aset Manajemen and Lautandhana Investment Management, which oversee a combined $1.4 billion of assets, anticipate that two-year paper will continue to outperform as the government focuses on reducing the immediate risk of inflation. Indonesia’s two-year sukuk returned 2.5 percent this year, compared with a 1.3 percent advance for Malaysia’s similar-maturity Islamic securities.
“We are shortening the durations in our portfolio,” Angky Hendra, head of fixed-income at Batavia Prosperindo, which manages Rp 11.2 trillion ($1.2 billion) in assets, said. “There’s a growing risk the budget deficit will widen, which would lower Indonesia’s credit quality.”
Lawmakers rejected the government’s bid for an immediate 33 percent boost of the price of subsidized fuel, instead giving it the power to raise prices only when the Indonesia Crude Price exceeds the budget assumption of $105 a barrel by an average 15 percent over a six-month period. The average was 11 percent above that assumed level at $116.50 a barrel as of March 31, according to Bloomberg calculations based on data from the Energy and Mineral Resources Ministry.
The clause has “essentially written off the possibility of a near-term fuel hike,” Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale, wrote in a note to clients.
Consumer-price gains accelerated for the first time in seven months to 3.97 percent in March, official data show. Inflation may reach 6.8 percent in 2012 should the price of subsidized fuel be lifted by 33 percent, Bank Indonesia governor Darmin Nasution said last month before the decision. On Thursday, he said inflation may accelerate to 6.6 percent this year should prices be increased, adding that price growth would ease to between 3 percent and 5 percent by 2016.
Bank Indonesia held its benchmark interest rate at 5.75 percent on Thursday, after reducing borrowing costs by one percentage point since September. The central bank sold Rp 5.25 trillion of nine-month Islamic bills on Thursday, at a yield of 3.9257 percent. Four out of five of Indonesia’s most recent sovereign Islamic debt auctions exceeded the sales target. The nation received bids for almost four times the Rp 1.9 trillion of securities it sold in an auction this week.
Failure to increase the price of subsidized fuel has spurred concern that the budget deficit, at 1.3 percent of gross domestic product in 2011, will widen. Maintaining subsidies will cause the deficit to exceed the legal limit of 3 percent of GDP, National Economic Committee Vice Chairman M. Chatib Basri said last month.
Standard & Poor’s were “disappointed at the setback,” John Chambers, managing director of sovereign ratings at the company, said, adding the subsidies are not well directed. S&P is the only one of the three major ratings companies that does not assign Indonesia an investment-grade credit rating, ranking it the highest junk level.
“Investors prefer to see fuel prices raised and subsidies reduced as it would help improve our budget,” Ahmad Subagja, a portfolio manager at Lautandhana Investment Management. The fund hasn’t reduced its investment in longer-term Islamic bonds, although it plans to do so when prices are suitable, he said.
Bloomberg
Source: http://www.thejakartaglobe.com/business/indonesias-credit-quality-a-concern-on-vague-budget-deficit-cutting-plan/511206 - April 13, 2012
No comments:
Post a Comment