Foreign investors are displaying increased confidence in entrusting their funds for investment in Indonesia. This is demonstrated by the substantial influx of foreign capital into Government Securities (SBN), surpassing Rp82 trillion as of June 2023.
Furthermore, it is anticipated that the flow of foreign funds into the SBN market will intensify during the second half of 2023. This positive trend diverges from the relatively lower amount of foreign funds allocated to the stock market during the same period, which amounted to less than Rp20 trillion. Notably, the current proportion of foreign funds in SBN stands at only 15 percent of the total circulating SBN, indicating significant potential for further growth.
To meet funding requirements resulting from sound fiscal management, the government aims to obtain Rp205 trillion through SBN issuance in the second half of 2023. However, this limited funding necessity could lead to a reduction in the supply of new instruments in the market. Nevertheless, it also presents an opportunity for SBN to gain strength, benefiting from high market interest.
Ramdhan Ario Maruto, Associate Director of Fixed Income at Anugerah Sekuritas, commented on the growing interest of foreign investors in Indonesia, especially when global conditions exhibit greater stability. He highlighted the stability of Indonesia’s macroeconomic conditions and the continued strength of domestic liquidity as factors contributing to the renewed attraction of the Government Securities market to foreign investors.
The prospects of macroeconomic performance, characterized by a gradual decline in inflation to approximately 3-4 percent annually and the attainment of peak benchmark interest rates, serve as primary considerations for foreign investors eyeing SBN amidst the uncertainties of the post-pandemic recovery period.
Ramdhan further emphasized that the upcoming 2024 General Election holds minimal influence over the prospects of foreign funds in the SBN market. Instead, the foremost determinants lie in global uncertainties such as the interest rates set by The Fed and inflation levels.
The continual inflow of foreign funds will enhance market liquidity, potentially leading to increased market potential and reduced yields, as Ramdhan stated. Year-to-date data corroborates this trend, with SBN yields registering an average decrease of 7.55 basis points across all tenors. Additionally, non-resident investors have recorded a net buy of Rp84.70 trillion within the same period, underscoring their growing confidence in the Indonesian market.
Analyzing Investing data further reveals that Indonesia’s 10-year bond yield has experienced a year-to-date decline of 8.73 percent. This decline, from 6.924 on January 2, 2023, to 6.319 on July 11, 2023, further highlights the attractiveness of SBN to investors.