India to be one of fastest emerging market economies
Business Standard; Our Banking Bureau in Mumbai
Published : January 29, 2004
The Reserve Bank of India''s (RBI) report on currency and finance expects India to stand out as one of the fastest growing countries among the emerging market economies.
The estimate for GDP growth for 2003-04 has been pegged at 7 per cent, only next to china''s 7.5 per cent.
In the cross-country comparison based on IMF projections, the growth in real gross domestic product for 2003 has been forecast at 7 per cent as against 4.3 per cent in 2002.
In fact, the RBI estimate has been made with an upward bias as there are scopes for further improvement. In contrast, the projection for China has declined to 7.5 per cent in 2003 compared with 8 per cent in 2002.
The forecast is based on satisfactory agricultural GDP backed by good north east monsoon, growing momentum of industrial recovery with string export demand reinforced further by improved prospects for domestic investments.
The improved prospects of real activity globally should also add to the strength to the upwards momentum in growth , said the report.
Although the report has expressed concern over the fiscal situation as the tax GDP ratio still remains at low levels, it has brought out the fact that the high fiscal deficit has not been binding on the private sector due to growing saving-investment surplus.
Moreover, in 2001-02 and 2002-03, the private sector surplus has spilled over to the external sector in addition to financing the public sector deficit.
The rising secondary market and strong macro economic fundamentals have added to the strong business confidence.
The report is of the view that capital flows are likely to continue. In this backdrop of current policy stance on exchange rate management and reserves accretion, the report stated that it would be appropriate for the RBI to continue maintain orderly conditions in foreign exchange markets as well as maintain stable conditions in the financial markets through monetary measures.
It has also mentioned that while the depreciation of US dollar has so far been relatively orderly and further depreciation remains a risk to global recovery under the shadow of twin deficits.
The monetary policy has moved to mild tightening in some countries whereas there has been a neutral bias with expectations of tightening , particularly in US.
These uncertainties would necessarily impact global liquidity as well as flow of resources to emerging countries including India. theless, it has been clarified that the relative weight of fundamentals and confidence in the economy appears to be more than the global liquidity factors that govern the capital flows in India.
Tuesday February 3, 6:53 PM
Asia Fund View: Thailand Still Favored Despite Bird Flu
By Jenny Paris
Of DOW JONES NEWSWIRES
BANGKOK (Dow Jones)–Thailand remains one of the most attractive equity markets in Asia despite a recent sell-off prompted by the region''s bird flu outbreak, which has brought the Stock Exchange of Thailand Index down 14% since the beginning of the year, a top fund manager said.
Aberdeen Asset Management Co. said it hasn''t made any shift in its portfolios or weightings for Thailand, since the country''s economic outlook and earnings prospects for most stock picks haven''t so far been threatened.
“We haven''t changed our strategy,” Alan Kam, Aberdeen''s head in Thailand, told Dow Jones Newswires on Tuesday.
“The market was due for a correction technically, but fundamentally we''re still bullish on Thailand. It remains one of our favorite markets in Asia.”
Aberdeen manages a total of $545 million worth of assets in Thailand. Its equity funds are focused on the retail, energy and finance sectors, which haven''t been directly affected by the bird flu outbreak.
But while fund managers remain bullish, some investors may become more wary about the transparency of the Thai government, which has been widely accused of initially attempting to cover up the existence of the disease, Kam warned.
And regardless of the bird flu, it''s unlikely that the Thai stock market will match last year''s remarkable performance since new growth stories are emerging elsewhere in the region, he added. The main Thai stock index more than doubled in 2003.
“I don''t think the bird flu will change the GDP growth outlook,” Kam said. “What it might change is the way investors look at the Thai government, at how transparent it is.”
The SET Index has been extremely volatile this week. On Monday it tumbled 4.5%; on Tuesday it initially continued falling to an intra-day low of 649.31 points, but then rebounded in the late afternoon to close 4.9% higher at 699.75. Traders cited a flurry of bargain-hunting by foreign investors.
Thai Corporate Recovery Is Intact
Many analysts and fund managers echo Kam in saying the market''s recent tumble hasn''t dented its long-term prospects; many describe the drop as a buying opportunity.
“We remain strongly positive on the market and the underlying economy despite the recent bird flu problems and other factors currently negatively impacting sentiment,” ING Securities said in a research note.
“Though this downward movement is unpleasant, we view it as a buying opportunity, as we believe the profit recovery of Thai corporates is sustainable and we expect to see a strong return of bank earnings in 2004,” it said.
ING has a year-end target of 888 points for the SET Index.
At least 45 million chickens have been slaughtered across Asia, devastating the poultry industry and sending poultry exporters'' stocks nose-diving.
But as long as the impact is restricted mainly to poultry, the overall economic damage of the bird flu should be limited, even in Thailand, the world''s fourth largest poultry exporter. Most analysts still expect the country to post on average 6.5%-7% Gross Domestic Product growth this year, on top of last year''s 6.4% growth.
“There''s nothing wrong with corporate Thailand. The corporate story is intact. People have made a lot of money and they''re just trying to get some out,” said Robert Panaloza, Aberdeen''s equity investment director.
Kam said the cover-up allegations hadn''t changed Aberdeen''s view of the country, but they highlighted the need to be “more careful and more vigilant”.
“Transparency, corporate governance, ethical standards stand very high on our list of investment criteria,” Kam said. “The value of our portfolio has dropped less than the SET Index because the stocks we hold are based on these criteria.”
The Thai government has said officials made mistakes in their initial handling of the flu, but has denied that any attempt to cover up the outbreak was made.
Among Aberdeen''s top picks are natural gas producer PTT Exploration and Production (PTTEP.TH), retail operator Central Pattana PCL (CPN.TH), Hana Microelectronics PLC (HANA.TH) and Tisco Finance PLC (TISCO.TH).
However, Aberdeen is ready for much lower returns on its Thai equity funds this year after an 85% gain last year. Although Thailand remains an attractive market, it will be hard to repeat last year''s star performance and other markets, such as India, have also come into the spotlight, Kam said.
“I would be very happy with returns of 20% this year, our estimate before the bird flu outbreak, which remains unchanged,” he said.
- Yahoo News, 03/Feb/2004 -
Asian investors optimistic for 2004
By Claire Milhench
Institutional investors in Asia are expecting double-digit returns of 10-15% this year, according to research from Greenwich Associates. However, the outlook for the Japanese and Australian markets is not so bullish.
Greenwich interviewed 200 Asian equity investment professionals at institutions based in Hong Kong and Singapore and found a marked reversal in attitude after two years of poor performance, the departure of some major firms from the market and the SARS crisis. Some 75% of Hong Kong and Singapore firms planned to maintain current staffing levels over the next 12 months, after several consecutive years of cost-cutting.
Consultant John Feng said that it was a year of two halves with a very tough environment in H1 due to SARS, and H2 bringing healthy returns, especially in some of the smaller markets like Indonesia and Thailand which performed in the region of 30-40% and higher.
This year investors are most bullish on Taiwanese stocks, with an average 15.4% rate of return predicted. For Hong Kong shares, over half of the respondents expected returns of 10-20% whilst for the Singapore market, half expected up to 10% returns. Fewer than 9% of all those surveyed expected to see negative returns.
A healthy underwriting pipeline for the issuers in the region and the anticipation of continued strong performance is prompting investors to look to the sell-side for ideas and advice in making investment decisions. “Priorities are changing in the Asian markets,” said Jay Bennett, a consultant with Greenwich Associates. “The focus is now shifting to meet the demands of busier local deal calendars. And especially among the largest institutions, a substantial portion of commission allocations are moving out of trading and into research and new issues.”
However, whilst Asian institutions kept their portfolio holdings in Australian shares steady at 11% in 2003, a sharp decline in Australian share brokerage commissions suggested that the institutional focus was shifting away from the market.
- Global Investor, UK, 03/Feb/2004 -
India-the next Asian tiger
It''s not just IT: manufacturing is also fueling the nation''s optimism. But infrastructure reforms are essential if the momentum is to be maintained
By Rupali Mukherjee
THE OBSERVER , London
Thursday, Feb 05, 2004,Page 9
Has the Indian elephant finally mutated into a tiger? Its potential was never in doubt, but its stately pace has been a source of annoyance for some foreign investors and economists. Over the last few months, however, there has been a recognition of the improvements in India''s macroeconomic situation.
The world is beginning to take notice of India as not just an IT power but also a sourcing hub for sectors such as auto components, textiles and pharmaceuticals. In the US$2.3 billion ITES (information technology enabled services) sector alone, India could grow to US$23 billion by 2008, according to industry estimates.
The economy is enjoying its best period ever, with a growth rate of about 8 percent this year, making it one of the best performing economies in the world. Agricultural production is up as a result of good monsoons last year, factories are running at full capacity, corporates are earning good returns, stock markets have been on an upswing, and, most important of all, there''s a new optimism in the government and its policies.
“The average rate of growth during 1992 to 1997 was around 7 percent, and after 1997 was under 5 percent. But this year it''s been between 7.5 percent and 8 percent. Overall, all sectors are looking up with agricultural production going up, stable prices, falling interest rates, political stability, and the most recent relationship with Pakistan,” says Sanjaya Baru, chief editor of Financial Express, a prominent financial daily.
So what factors have led to this feel-good factor over the past year? The Federation of Indian Chambers of Commerce and Industry (FICCI) feels last year was “an exceptionally good year. Among the outstanding achievements, the two that stand out are the projected record increase in food grain production by around 38 million tonnes in 2003-04, and the increase in foreign exchange reserves to above US$100 billion on 19 Dec. 2003.”
This is a long, long way from those dismal days of 1990 to 1991 when reserves had fallen below US$1 billion, and the country had to mortgage its gold to borrow.
Moody''s last week upgraded India''s long-term foreign currency rating due to rising foreign investment and economic growth. India''s GDP is set to move above 7 percent in 2003-2004 for the first time in seven years. GDP growth touched 8.4 percent in the second quarter of 2003-2004, the highest quarterly GDP growth ever recorded.
A close look at the figures reveals that the services sector is accelerating at a fast pace and accounted for close to two-thirds of the pick-up in the GDP growth rate in the first half of the year, while industry contributed one-quarter (24.1 percent) and agriculture one-tenth (11.7 percent).
“Domestic growth is being driven by record consumerism in housing and automobiles, which makes it a very attractive market for investors,” says one fund manager. According to a recent Goldman Sachs Report, the Indian economy is expected to be the third-largest in the world by 2032, after the US and China but overtaking that of France, Germany and Japan. The stock markets have been buoyant since May 2003, with the indices doubling over the last seven months.
Adam Matthews, Asia-region specialist with JP Morgan Fleming, which has huge fund exposures in India, says: “India is being rated even higher than China at the moment, and is a hot market right now.”
Buoyed by a good performance in the recent assembly elections in three major states, the Vajpayee government decided to move in for an early kill with elections this April instead of September.
N.K. Singh, of the Planning Commission, who is scripting the policy road map for FDI in various sectors, says: “There''s a new awakening in the economy, and we are on track by and large.”
Only a fortnight ago, Finance Minister Jaswant Singh unveiled measures to sustain the “feel-good” factor across the urban middle-class, rural, small and medium enterprises and the infrastructure sector.
Analysts feel the reduction of peak customs duty on non-agricultural goods from 25 percent to 20 percent will enhance the competitiveness of the Indian manufacturing industry.
But will the impending elections result in a slowdown in the economic reform process? The corporate sector is trusting the government on this one and feels that reforms have been broadly accepted by the country and there are no chances of reversals. The FICCI feels that the next stage of reforms should be more focused on fiscal policies and labor market reforms, without abandoning the crucial infrastructure sector. So far, government efforts to woo foreign and private investment in major infrastructure projects such as ports, airports, and electric power have not met with much interest, because of red tape, corruption and regulations. According to a Confederation of Indian Industry (CII) Business Outlook Survey last year, other factors limiting enterprise are tax administration at the state and central government levels, lack of working capital and labor disputes.
While the road network is improving, power has emerged as one of most vexing problems still plaguing India, Inc.
The CII says: “The country has been following a reform program, but it is not the time to pause. We need to move fast in the infrastructure, finance and housing sectors, and make agriculture monsoon-proof.”
An encouraging sign is that the states are now increasing their efforts to create a positive investment climate with road and electricity projects.
Tarun Das, director-general of CII, feels “India has so far been acknowledged as a leader in the services industry, but for the past one-and-a-half years it is emerging as a manufacturing hub.”
India is now the world''s second-largest small car market after Japan. Majors such as Suzuki and Hyundai are making it a sourcing base for their global markets.
More and more Indian companies are acquiring companies abroad, having pumped out over US$1 billion already. India is now the eighth-largest overseas investor in the UK. Reliance, India''s largest conglomerate with interests from oil to telecoms, acquired the UK-based Flag Group for more than US$200 million. Wockhardt acquired a mid-sized pharmaceutical firm in Wales, Mastek''s software runs London''s congestion charge scheme, Ranbaxy took a part of Aventis operations in France and Infosys bought an IT firm in Australia.
The loosening of controls and entry of overseas players in the Indian market, though opposed initially, has made the corporate sector stronger.
“Due to the intense competition in the market with relaxing of the boundaries, Indian companies were so busy in the gym with no time to look in the mirror at their biceps, they did not realize how strong they had become. Now they are deriving the benefits of the work done,” says Anand Mahindra, vice-chairman of automobile major Mahindra & Mahindra.
And India''s strengths in the global marketplace include a large pool of low-wage, English-speaking graduates.
But there is still a long way to go. China could steal business away from India if it does not move fast enough with its reforms. The tiger may still be an endangered species.
The Miami Herald
Posted on Thu, Feb. 05, 2004
Investors'' interest in Latin America grows
BY CHRISTINA HOAG
Equity investors are showing renewed but cautious interest in Latin America this year with Brazil and Mexico standing out as the most attractive destinations for capital, according to a survey by KPMG released Thursday.
''''There''s a much more positive tone,'''' said Jean-Pierre Trouillot, managing director for the financial firm''s transaction services department in Miami.
According to the survey of about 100 equity, institutional and strategic investors and advisors, 93 percent expect investment to rise in Latin America this year. Most funds will come from U.S. institutional investors, private investors and local pension funds.
''''Europeans seem to be more interested in Asia as an emerging market these days,'''' Trouillot said.
An interesting finding: More than 60 percent of investors cited their own lack of research into deals as the top cause of past investment failures. Over three-quarters said they would carry out more due diligence as a way to prevent future missteps.
''''In the past it was a kind of blind optimism, people made investment really because they thought they couldn''t miss,'''' Trouillot said. ``This is one of the lessons that has been learned.''''
The countries named as most favorable for investors were the region''s two biggest economies: Brazil and Mexico, followed by Chile. Argentina is making a substantial recovery: 46 percent of the respondents are optimistic about investing there.
At the bottom of the list was Venezuela.
Investors develop a taste for high risks \r\nFinancial Times\r\nBy Deborah Hargreaves and Päivi Munter\r\nPublished: February 6 2004 22:20 | Last Updated: February 6 2004 22:20 \r\n\r\nThe surge of interest in emerging market equities has intensified this year as investors hope to repeat last year''s stellar returns. But as capital flows rise to levels last seen before the Asian financial crisis, strategists caution that many investors are taking big risks.\r\n\r\nLast year''s return on the FTSE emerging markets index of 54 per cent - in dollar terms - eclipsed the 35 per cent rise in the all-world index. The rush into emerging market bonds also saw yield spreads over US Treasuries fall to their lowest levels since 1997.\r\n\r\nIn the first month of this year, investors poured $429m into emerging market equity funds - the highest inflow since February 1996. Capital inflows into emerging market debt reached record highs last year, although activity slowed at the start of 2004.\r\n\r\nJP Morgan said institutional investors, such as pension funds, made net investments of about $9bn in emerging market bonds last year. The trend has been rising since 2002 when the bank first began compiling data.\r\n\r\nInflows last year from mutual funds into emerging market bonds roughly doubled to a record high of about $4bn, much of which represented retail money.\r\n\r\nBut emerging markets remain high risk. Many are loosely regulated, open to political risk and subject to extreme volatility, although dollar-denominated emerging market bonds are less volatile than equities. These markets are rising rapidly but still represent only a tiny part of the world''s market capitalisation.\r\n\r\nBrazilian stocks, for example, have fallen 6 per cent in dollar terms so far this year after showing an 82 per cent real return last year. The fall was in response to concerns about interest rates and hints from the US Federal Reserve that rates may rise sooner rather than later.\r\n\r\nAndrew Milligan, global strategist at Standard Life Investments, says emerging markets are all vulnerable to rising interest rates.\r\n\r\n“As and when the Fed starts to move, I think it is very clear indeed that people will want to take profits and there could be a sharp rotation into more defensive markets,” he said.\r\n\r\nBut Standard Life is optimistic about the longer term outlook for emerging markets. It expects China to become the second biggest by market capitalisation by 2050, accounting for 25 per cent of the world''s market capitalisation, with the US at 45 per cent.\r\n\r\nEmerging markets have also developed their economies and improved their monetary management since the last financial crisis. Mr Milligan points out that many emerging countries are now running current account surpluses, which give them more room to manoeuvre in a liquidity crisis.\r\n\r\nSome are even on the verge of moving into the top rank. FTSE International, the index provider, is currently looking at its criteria for classifying markets, with the result that Korea and Taiwan may join the developed section of the world index later this year. That could lead to a big rise in capital flows to these markets as fund managers re-weight their portfolios to fit the benchmarks.\r\n\r\nThe rewards are also high for bold investors: since December 1990, emerging market debt has generated annualised returns of 15.2 per cent, compared with 12.1 per cent for US equities and nearly 10.7 per cent for US high-yield corporate bonds. But debt defaults in Russia, and to a lesser extent in Argentina, prompted declines in 1998 and 2001.\r\n\r\nColm McDonagh, head of emerging market debt at Aberdeen Asset Managers, says: “The long-term performance of emerging debt is better than that of any other mainstream asset class.”\r\n\r\nInternational investors mainly trade hard-currency bonds, although 75 per cent of new emerging market bond issuance is now denominated in local currencies.\r\n\r\nJonathan Bayliss, head of quantitative strategy at JP Morgan, says: “Large institutional investors are only just starting to make allocations into this area, but we expect this will be the big trend over the next five years.”\r\n\r\nThis is because local-currency debt pays a higher rate of interest. But it also entails a bigger risk: emerging market currencies and interest rate cycles tend to be volatile.
Emerging Debt-Asia spreads stronger ahead of Indonesian issue
Reuters - 11:18 01Mar2004
HONG KONG, March 1 (Reuters) - Asian dollar bond spreads strengthened one to two basis points (bps) on Monday as investors saw higher yields from US$1.5 billion in new debt due in the market this week offsetting worries about the level of supply.
“The market is quite stable. Some credits have tightened from Friday''s close because of strong performance of U.S. corporate spreads,” said a head of credit trading at a European investment bank. “The market will be closely watching the new issues.”
Indonesia is expected to sell as much as US$1.0 billion of 10-year sovereign bonds this week, its first foray into the global markets in more than seven years.
While Jakarta has not released any indicative price guidance for the deal being lead managed by JP Morgan and Deutsche Bank, market sources say the sovereign bond could be priced between 270 bps and 300 bps over 10-year U.S. Treasuries.
“If they price it around 300 bps, it should be okay. Indonesia is an improving credit and strong domestic liquidity should support the bonds,” said Ben Yuen, head of Asian fixed income at First State Investments.
Infrequently traded Indonesia dollar bonds due 2006 <455780AB2=RD> are currently quoted at 260 bps over U.S. Treasuries.
A narrowing fiscal deficit, declining inflation, scarcity value of Indonesian paper and credit rating upgrades have spurred foreign investor interest in Indonesia''s sovereign bond offering.
Global rating agency Standard & Poor''s raised Indonesia''s credit rating twice last year to B from CCC-plus, while rival Moody''s Investors Service has a B2 rating on Indonesia.
Bond strategists expect regional bond investors to buy heavily into the new Indonesian bond by trimming their exposure to high-yielding Philippine sovereign bonds, which have lost ground in the past one month on worries about the presidential election on May 10.
“I expect Philippine sovereign bonds to trade rangebound between now and the elections. Investors will buy on dips and sell when they go up,” said a Manila-based trader at a foreign bank.
Spreads on Philippine sovereign dollar bonds due 2014 <PH017264460=> were quoted at 487/477 bps over U.S. Treasuries.
Meanwhile, India''s state-run National Thermal Power Corp. (NTPC) plans to sell US$200 million in seven-year bonds at about 200 to 210 bps over Treasuries.
The deal will be the second debt issue from India this year after Industrial Development Bank of India sold US$300 million in five-year bonds at 185 bps over Treasuries.
South Korea''s Hana Bank <002860.KS> is also expected to sell about US$300 million in five-year dollar-denominated debt this week. Bank of America, Citigroup and UBS are the lead managers.
Om Alfa, jangan optims dulu. Coba perhatikan baik-baik tabel anda di atas, tahun 2000 ke 2001. Kenapa growth tiba-tiba jebol. Terutama negara2 yang mengutamakan eksport ke US.
Pada saat itu (2000) US berusaha mengurang deficit berjalan sebesar $ 20 milyar dari 300 an. Dampaknya gileeee banget. Nah sekarang kalau US berusaha menurunkan account deficit $100 milyar…. kolaps …. … sorry I spoil your dream. Just dream of me…. it is better. Dreaming of beautiful ginnie…
Indonesia''s Rupiah Debt May Gain on Rate Cuts, Economic Growth
March 2 (Bloomberg) – Indonesian rupiah-denominated bonds are likely to rise this year on speculation the nation''s central bank will reduce interest rates to keep economic growth above 4 percent, investors such as Li Ming Suryaputra said.
Rupiah bonds will be attractive ``with economic growth and an easing interest-rate trend,'''' said Suryaputra, 35, who bid in last week''s bond sale for some of the equivalent of $1.1 billion she helps oversee at PT Manulife Asset Management in Jakarta. She expects Indonesian bonds to return about 12 percent this year.
To spur economic growth in Southeast Asia''s largest economy, the Indonesian central bank may cut the yield on its benchmark one-month bill, its chief monetary policy tool, by almost 0.50 percentage point to less than 7 percent this year, Deputy Governor Aslim Tadjuddin said last month. The rate reduction comes amid the government''s forecast for economic growth of 5 percent in 2004, up from 4.1 percent.
Bank Indonesia lowered rates by almost 5.5 percentage points over the past 14 months and government securities rallied as President Megawati Soekarnoputri brought the inflation rate down to an annualized 4.8 percent in January, the slowest pace since July 2000. Inflation erodes the value of fixed-coupon payments.
The government''s 11 percent bond maturing Dec. 15, 2012, rose to 96.71, or 967,100 rupiah per 1 million rupiah face amount from 90.50 at the end of last year, according to Bloomberg data. The yield fell to 11.60 percent from 12.81 percent.
`Some Juice Left''
Even the country''s decision to sell bonds instead of taking out loans from the International Monetary Fund won''t slow appreciation in rupiah-denominated debt, investors such as Cigna International Investment Advisors Co.''s Hiroki Itoh said.
Indonesia plans to sell 32.5 trillion rupiah ($3.85 billion) of local-currency and U.S. dollar-denominated debt in 2004, betting emerging-market investors will be drawn by its forecast for growth of at least 5 percent.
``I would prefer the rupiah bonds'''' to the dollar- denominated debt, said Itoh, who helps manage the equivalent of $1.5 billion in Tokyo. ``There''s still some juice left in the performance. The central bank is still in an easing mode.''''
Itoh, whose company is a unit of the third-biggest U.S. health insurer, said he didn''t buy last week but may do so later this year.
Indonesia is selling bonds to fund a deficit estimated at 24.4 trillion rupiah and refinance part of its debt of 430 trillion rupiah. The government forecasts the deficit this year will be equivalent to 1.2 percent of the country''s $185 billion economy, down from 1.9 percent in 2003.
The government said investors bid for more than double the 2.5 trillion rupiah Dec. 15, 2012, notes for sale last week in the first auction of the year. The debt was priced to yield 11.82 percent. The sale increased the size of an issue first sold in September, bringing the outstanding amount to 8.35 trillion rupiah.
Suryaputra said she has been increasing her holdings of rupiah bonds for four years, adding debt after Parliament removed Abdurrahman Wahid from the presidency in 2001 amid corruption allegations. Suryaputra has been at Manulife, the biggest overseas life insurer in Indonesia, for six years.
Investors should buy Indonesia''s 14 percent note maturing in June 2009 because it may be one of the securities leading this year''s rally, said Adrian Khoo, a fixed-income strategist at HSBC Treasury & Capital Markets in Hong Kong.
The yield will probably fall to 10.5 percent by year-end, giving a return of about 21 percent including reinvested interest to investors who bought at the beginning of 2004, Khoo said.
The 20.2 trillion rupiah outstanding is more than double the size of the bond sold last week, making it easier to trade, he said. The note''s yield has dropped to 11.38 percent from 13 percent at the end of 2003, according to Bloomberg data.
`Gains Have Been Made''
Indonesia''s rupiah-denominated debt already reflects expectations for central bank rate reductions and slowing inflation, making them expensive, investors such as Lye Thiam Wooi said.
``The market has priced in most of the good news of the Indonesian recovery story,'''' said Lye, who helps manage $7 billion in fixed-income assets at Straits Lion Asset Management in Singapore. ``Most of the gains have been made.'''' Lye declined to comment on his investments.
Investors such as Citigroup Asset Management Inc.''s Edwin Chungunco said the July presidential elections are a reason to wait.
``Indonesia is definitely a place where you want to be a bit more cautious,'''' said Chungunco, 40, who helps oversee $1 billion in Singapore and has been with Citigroup for 15 years. ``I would not get in until I see a better picture of what''s going to happen in the elections.''''
Violence broke out after the last election in October 1999, which brought Wahid to the presidency and Megawati to the vice presidency. Thousands of Megawati supporters clashed with police in Jakarta, throwing rocks, setting fires and torching cars. Police fired tear gas and shot at the crowd.
Former Indonesian Defense Minister Wiranto, who was charged in East Timor for crimes against humanity during the nation''s independence vote in 1999, has said he may run this year.
A bombing at a Bali nightclub that killed at least 202 people in October 2002 and an Aug. 5 blast at Jakarta''s JM Marriott hotel that killed 12 may also damp demand among some investors. Investigators blamed both on Jemaah Islamiyah, which Indonesian police have said is linked to al-Qaeda.
An index of Indonesian local-currency bonds returned 7 percent so far in 2004, the best performance of 19 indexes compiled by HSBC Holdings Plc that track local and dollar- denominated debt in Asia. It returned about 16 percent last year.
Moody''s Investors Service in September raised its credit rating for Indonesian local-currency debt by one level to B2, in part citing an increase in foreign reserves. The nation''s reserves have risen to $36.3 billion as of Feb. 20 from $29.4 billion at the end of 2000.
The HSBC Indonesian local-currency bond index has returned 4.5 percent since the Moody''s decision.
Standard & Poor''s in October raised the nation''s rupiah debt rating to B+. Both ratings are junk – or high yield, high-risk - - designations. Other countries that have B+ rated local-currency debt are Turkey, Ghana, Papua New Guinea and the Cook Islands.
Manulife''s Phinisi Dana Tetap Pemerintah mutual fund, which is based in Jakarta and invests mainly in local-currency Indonesian debt, returned 12.3 percent last year, according to Bloomberg data. By comparison, HSBC''s index of Asian local- currency bonds returned 10.8 percent.
Last Updated: March 1, 2004 12:28 EST
Indonesia given a vote of confidence
By Shawn Donnan in Jakarta
Published: March 3 2004 20:19 | Last Updated: March 3 2004 20:19
Emerging market investors on Wednesday gave a vote of confidence to Indonesia as strong demand for its first dollar-denominated sovereign bond since the Asian crisis prompted Jakarta to double the issue to $1bn.
Indonesia was the country hit hardest by the 1997/98 financial crisis, which contributed to the fall of President Suharto after 32 years in power. Since then, it has struggled with a difficult political transition and a slow economic recovery.
However, investors yesterday took up $1bn in 10-year bonds at a yield of 6.85 per cent, or 277bp over US Treasuries, after a planned $400m to $500m issue was more than eight times subscribed.
Analysts said the success of the transaction, managed by Deutsche Bank and JP Morgan, meant Jakarta''s cost of funds had slipped below that of its higher rated neighbour, the Philippines, as well as countries such as Turkey, Peru and Pakistan.
It also placed Indonesia, which will use the proceeds to help plug a deficit forecast to be 1.9 per cent of GDP this year, as the “tightest” non-investment grade sovereign credit in Asia, analysts said.
Standard & Poor''s raised Indonesia''s sovereign rating to Single B from CCC+ last year while Moody''s has a B2 rating in place.
Indonesia''s tight pricing is partly due to technical factors. It last issued bonds in 1996 and they are infrequently traded.
“If you want Indonesian sovereign risk in dollars, this is the only game in town,” said Ray Farris, CSFB''s head of Asian fixed income. “That''s why people are paying up for it.”
Despite an expected growing dependence on international capital markets, Indonesia is not seen returning to the market for at least nine months, Mr Farris said.