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(This November 5 story directs the business name BNP Paribas (OTC 🙂 Asset Management, Not Wealth Management, paragraph 9)
By Tom Westbrook and Anushka Trivedi
SINGAPORE (Reuters) – The Federal Reserve recently withdrew funds from emerging markets to reduce bond purchases. This moment is different, investors say, because they are betting on the bright gains that are spreading in some of Asia’s largest developing economies.
Indonesia, in particular, stood out with equity flows, a stable currency and a very volatile calm in its bond market until the Fed announced on Wednesday that it would begin pairing purchases.
It is a far cry from the “start” that plunged bonds and emerging market currencies in 2013 – the rupee fell by about 17% in five months – after Fed President Ben Bernanke was shocked by mentioning the cut in Congress.
This time the move was much better telegraphed, and few were surprised on Wednesday. But the fundamentals in Asia, where inflation is less pressing and exporters benefiting from high energy prices, have changed dramatically, and investors are increasingly willing to bet that 2013 is not a repeat.
“We’ve been through 2013 and 2018, and I don’t think it’s the same thing in this rate-raising cycle,” said Howe Chung Wan, head of fixed income Asia at Principal Global Investors in Singapore, with selective exposure. emerging markets.
“Sitting here in Asia, there are other things that are more enthusiastic for us than the Fed,” he said, such as the Chinese economy and credit markets and volatile commodity prices, as well as stock flows that support the Indonesian currency.
Enthusiasm for the upcoming charts has taken money to the Indonesian stock market, and the benchmark Jakarta stock market is in its best year since 2017, as indices in Thailand, Vietnam and India meet similar benchmarks.
Coal and palm oil prices – Indonesia is the world’s two largest exporter – have pushed Indonesia’s trade surplus to record levels and promised tax gains that have reassured investors in sovereign bonds.
“Indonesia has benefited greatly from this energy crisis,” said Jessica Tea, Asia Pacific investment specialist and China’s largest shareholder in Hong Kong’s BNP Paribas Asset Management.
“Also, a middle class is growing and our household income is rising; Indonesia is probably one of our favorite exhibits in the region.”
(To view the Indonesian balance of payments chart: https://fingfx.thomsonreuters.com/gfx/mkt/gdvzydqqdpw/Pasted%20image%201636085168159.png)
FIRST BREAKDOWN
Market mechanics is also a favorable wind in a region where small investors continue to pour money into stocks.
The number of retail accounts has risen by about a third since the end of 2019 to reach three million in Vietnam, according to UBS analysts, helping to raise the benchmark index by 50% this year, twice as much.
In Indonesia, data from the Indonesia Central Securities Depository show that the number of investors in shares has risen by more than 70% year-on-year to 19 October, to 6.7 million.
Global investors are also surrounded by investors who are terrified of violations in China looking for ways to put their money to work in other markets.
Sure, destinations like Indonesia remain risky and risky in the face of capital flight if low-risk U.S. interest rates rise sharply. The reduction in foreign ownership of sovereign bonds highlights a special caution in growth forecasts, mainly because the government is legally obliged to reduce its deficit.
“I am concerned about the growth opportunities, even before the country recovers from the pandemic … Indonesia is entering a time of strong fiscal consolidation,” said Kunal Kundu Kunal Kundu Economie Societe Generale (OTC :).
However, the outrageous reduction options are betting on currencies and equities, especially as China’s markets are flooded with cautious sentiment.
“The Fed has navigated communication without much fuss.” Deutsche Bank (DE 🙂 analysts wrote in late September.
“The five fragile members of Asia are also much less fragile,” they added, citing Indonesia and India, along with Brazil, South Africa and Turkey, which in 2013 saw them particularly vulnerable to fluctuating foreign cash flows.
“By the end of the year we are benefiting from our Asian FX trading by keeping the INR and IDR long, against the CNH shorts.”
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