US Macro Conditions Have Not Affected, SBN Market Is Still Attractive For Foreigners Until The End Of The Year

JAKARTA - After the increase in the positive number of COVID-19 in Indonesia, especially in DKI Jakarta in the last few days, it is expected to affect the domestic economy. The extension of the implementation of micro Community Activity Restrictions (PPKM) for 15-28 June 2021, as a result of the increase in the number of COVID-19, is estimated to suppress the positive growth rate which will begin to run during the second quarter of 2021.

This negative sentiment had an impact on market participants as reflected in the Composite Stock Price Index (CSPI) which was at the level of 6,078.57 or decreased by 10.47 points on Wednesday, June 16 2021. It is feared that this difficult condition will affect the choice of investors, especially foreign investors. to place funds in the Indonesian financial market either through stock instruments or Government Securities (SBN).

On the other hand, based on the analysis of PT Bahana TCW Investment Management (Bahana TCW), in the short term Indonesia's financial market conditions, especially SBN trading, will still be attractive, especially for foreign investors.

According to the Investment Director and Head of Macroeconomics at Bahana TCW, Budi Hikmat, despite the negative sentiment in the market due to the outbreak of COVID-19 cases in Indonesia, his party sees that the stability of the SBN market can be maintained this year.

"We see that there are a number of factors that will affect investors' expectations in investing in SBN, namely Indonesia's economic stability, our high yield of government bonds and excess liquidity in the global market. to Indonesia," said Budi, in a written statement, Saturday, June 19.

Currently, Indonesia's economic stability is still maintained. The rupiah exchange rate is stable, inflation is maintained below the target, the trade balance in May is a surplus of 2.36 billion US dollars, and also BI is likely to maintain the benchmark interest rate at 3.5 percent which keeps Indonesia's real rate positive and shows prudent monetary policy. .

Meanwhile, the release of macro data in the United States where the inflation rate soared to 5 percent (year on year/yoy) had sparked speculation on the Fed's accelerated tapering policy and could trigger capital inflows in the near future.

Budi explained that it is unlikely that US inflation data will have much effect on global investors because US inflation of 5 percent is temporary. This can be seen from the largest contributor to the US inflation rate is the increase in transportation costs, in this case the price of used cars. Meanwhile, the main indicators, such as the prices of basic commodities, are still under control.

Budi added that the Fed also stated the same thing that inflation is only temporary and will improve soon. In the latest projections, the Fed shows inflation will start to decline in 2022.

As a result, long-term market inflation expectations gradually fell. The release of the opinion of members of the Fed signaled that a new interest rate hike would occur in 2023.

"We estimate that the taper will only start in early 2022. In our view, currently global market players believe in the signal given by the Fed that monetary policy will remain accommodative, at least until the end of this year," he explained.

Under these conditions, it is estimated that global market players will continue to channel excess liquidity in emerging markets that still offer high yields until the end of this year. Indonesia's 10-year SBN yield of 6.57 percent is still considered attractive compared to the 10-year US bond yield, which is estimated to be in the range of 1.37-1.88 percent.

This can be seen from the foreign funds that entered SBN as of June 15, amounting to Rp. 6.6 trillion.

"We estimate that the positive trend of foreign net buys in the SBN market will continue during the second semester of this year," Budi concluded.