Foreign ownership in Indonesian government bonds reached a record high this week, according to data from the finance ministry, as Southeast Asia's largest economy benefits from an increasing flow of global funds to emerging markets. The data showed foreigners owned 36.60 percent of government securities being traded, or equivalent to 419.07 trillion rupiah ($3.55 trillion). That surpassed a previous record high of 36.04 percent in mid-September 2011.
Foreign ownership of Indonesian government bond market has built up over the year, having increased from 32.54 percent in December last year. Despite this, yields for the benchmark 10-year bond have remained relatively stable at around 8.2 percent, as an increase in issuance offset the rise in foreign interest. The government plans to issue a total of 430.14 trillion rupiah of bonds to finance the 2014 budget deficit.
Analysts said much of the inflows, not only to Indonesia but to all emerging countries, are coming from Europe. The European Central Bank has kept interest rates at record lows since June. "Indonesia is attractive as inflation continues to fall, helping to improve bond prices," said Lana Soelistianingsih, head of research of Samuel Aset Manajemen in Jakarta.
Portfolio investors are also betting on better economic management under the next government due to take office on October 20, she added. President-elect Joko Widodo has promised to phase out fuel subsidies within four years, addressing one of the reasons Standard & Poor's Ratings Services has withheld an investment grade rating. S&P is the only international rating agency that has still to assign investment grade status to Indonesia.
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