JAKARTA - Senior Investment Strategic DBS Badminton Ho projects that Indonesian bonds will be significantly affected by the Fed's cut in interest rates, which is expected to occur in November 2024.
This is because cutting interest rates affects yields, while yields move oppositely to bond prices.
"This will be a positive thing in terms of capital gains, on bonds. The yields go up because the price of bonds moves opposite to the yield," saidlin in a DBS media briefing, quoted from Antara, Tuesday, October 1.
The decline in the Fed Fund Rate (FFR) also has the potential to weaken the US dollar. This condition is considered to be able to benefit Indonesia, which has a large debt position. If the US dollar weakens, the foreign debt that Indonesia needs to pay will be lighter.
"If the US dollar remains strong, it will be more challenging for Indonesia to pay off debt. Meanwhile, if the US dollar weakens due to the Fed's cut in interest rates, then Indonesia's ability to pay debts will be better," he explained.
Moreover, Indonesian bonds have a BBB credit rating, thus offering attractive profits for investors with relatively measurable risks.
Bonds with a tenor of 7 to 10 years issued by Indonesian companies have also added traction to investors, as they offer stable returns in the long term.
On the other hand, DBS Senior Investment Strategic Joanne Goh assessed that the ASEAN equity market would also be positively affected, including Indonesia.
The easing of the US monetary economy and the cutting of the FFR will encourage the acceleration of capital flows into developing countries, including ASEAN, especially sectors such as large companies (blue-chips).
The banking sector is said to be the main beneficiary, because it dominates the equity market in Indonesia with a composition of around 30 percent. The same thing happened in Singapore, Thailand, and Malaysia.
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"Banks will benefit from increased liquidity due to low interest rates. Even though lower interest rates can put pressure on bank profitability, if the ASEAN economy remains strong, increased liquidity will support growth," explained Joanne.
Other sectors, such as the DIRE or Real Estate Investment Fund, in the ASEAN region are also believed to benefit from cutting the Fed interest rate.
Joanne also believes that Indonesia is one of the main markets that benefits from China Plus One's strategy, where foreign direct investment (FDI) is diverted to countries other than China. Indonesia will also benefit from strong domestic demand and lower interest rates, which will encourage consumption and economic growth.
"Overall, Indonesia is one of DBS' favorite markets in ASEAN," he said.
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