Foreign Investments in Indonesia On The Rise

Cantika Adinda, writing for CNBC Indonesia is reporting on data released by Bank Indonesia (BI) regarding increasing inflows of foreign funds into Indonesia, especially into the bond market. A number of economists view that the influx of foreign investors to Indonesia is caused by seeing the good fundamentals of the Indonesian economy at present and in the future.

Referring to Bank Indonesia (BI) data quoted by CNBC Indonesia on Tuesday (13/3/2022) it shows transaction data from December 5-8, non-residents on the domestic financial market bought a net of IDR 1.77-trillion.

The transaction included a net purchase of IDR 8.45-trillion on the Government Securities (SBN) market, while on the stock market there was a net sale of IDR 6.68-trillion.

UOB Indonesia’s Head of Economic and Research, Enrico Tanuwidjaja explained, the market is now starting to look for which countries have good economic fundamentals and Indonesia is one of them, report CNBC Indonesia.

“One of our externals is fairly strong. It has been noted that the trade balance surplus has reached a record high for the past two years,” Enrico explained to CNBC Indonesia when contacted.

Since May 2020 (for 30 consecutive months,) Indonesia’s trade balance has experienced a surplus. Finally, the October trade balance experienced a surplus of USD 5.67-billion, up 12.3-percent from the same period the previous year.

In addition to the trade balance, Enrico said that Indonesia’s current account is also expected to remain positive this year. Also supported because Indonesia’s economic growth is not like many other countries which are predicted to enter into a recession. “Our growth will indeed be affected by a recession, but we will not become a full grown recession. What will happen is that we will slow down,” he said. 

UOB estimates Indonesia’s economic growth this year will reach 5.4-percent (YoY) and will slow down to 4.9-percent (YoY) in 2023. 

Another factor that also makes many foreigners invest their money in Indonesia, is also related to the signal that the Fed’s interest rate seems to be starting to ease its increase, currently at 3.75 to 4-percent.

Even the spread with the current BI policy interest rate of 5.25-percent is considered quite competitive and attracts foreigners to enter.

“So if they enter now as a portfolio, they can have returns from several aspects, namely from the price in and currency gain. Because I see that when the Fed is about to peak, the rupiah will strengthen rapidly. So, that’s why a lot of funds are coming in, ‘ explained Enrico.

In a similar vein, BCA Chief Economist David Sumual explained that the inflow into the bond market was due to Indonesia’s inflation expectations which were lower than previously estimated, report CNBC Indonesia.

It was previously estimated that inflation in the country would break above 7-percent (YoY), but until November 2022 Indonesia’s inflation reached 5.42-percent (YoY), down from the previous month which reached 5.71-percent (YoY).

“So maybe in the future they might see this attractive price and these good external conditions they will start to enter. That will affect inflow, so bond prices will also start to rise,” explained David.

Bank Permata Chief Economist Josua Pardede added, although many foreigners have entered the domestic bond market, the pressure will tend to be more limited due to the lower rate hikes by The Fed and BI next year.

“Pressure on the SBN market tends to be more limited considering the potential increase in US and BI central bank interest rates in 2023 which are expected to be lower than the central bank’s rate hike in 2022. In addition, inflation expectations which tend to be sloping also have the potential to limit negative sentiment on the bond market,” explained Josua.

Source: CNBC Indonesia

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