Market Update Bancassurance April 2020

In March, bond market weakened (BINDO index was down 5.2%) and 10-year government bond yields hiked drastically from 6.9% to 8.4%. What happened? 

Bond market fell due to panic in global market as the intensity of the Covid-19 virus outbreak that increased drastically. The outbreak was initially concentrated in China, but then in March it spread globally including to the US and Europe. This widened spread of the virus increased the risk of global economic weakening, especially after many countries issued social distancing or even lockdown policies which limit economic activities. This condition triggered panic selling globally, where investors diverted their investments to low risk assets (safe haven) such as US Treasury (UST) bonds and US dollar cash. Global market volatility index (VIX index) hiked steeply from 19.86 to the highest level of 82.69 which is higher than the level in 2008 Global Monetary Crisis where VIX index reached 80.86. Indonesia bond market also experienced this panic selling, where foreign investors recorded large outflow from bond market of IDR 121 trillion. This also reflected in Indonesia 5-year CDS which hiked significantly from around 60 to the highest level of 292.25.

Currently Covid-19 is still spreading, will there be further downside risk for Indonesia bond? 

In the condition of market panic, what’s most important is how to ease investor’s panic and reinstate confidence to create new stability. In this case, 3 key factors to ease market panic are:

  • Monetary stimulus: required to ensure the continuity of financial system liquidity, so that the cashflow for business and the society can be provided. 
  • Fiscal stimulus: required to provide economic aid to the people affected by virus spread. 
  • Declining virus spread outbreak: is the main factor in reinstating optimism. A subsiding virus spread gives the signal that economy can gradually back to normal, ending social distancing period. 

At least two of the three factors have been achieved at this time, which are monetary and fiscal stimulus that were issued massively by global governments and central banks, including Indonesia. So far those policies have succeeded in calming the market and giving support to sentiments. This improvement can be seen in VIX index that moved to around 46 and Indonesia CDS which went down to 220s.

Speaking about fiscal stimulus, to support the economy Indonesian government issued the largest stimulus in history  of IDR 405 trillion. How to finance this stimulus? Will Government bonds issuance swell up and become a burden to the market? 

Based on the report from the government, majority of the source of the financing is State Budget reallocation. Around IDR 255 trillion (63% of the stimulus total) came from reallocation and saving of State Budget, while the rest, IDR 150 trillion (37% of the stimulus total) came from bilateral debt and bond issuance. In our opinion the government will surely do their best not to give more pressure to Indonesian Rupiah bond market. To minimize the supply pressure to Rupiah Government bond market, the government can issue global bond, open private placement line, and maximize the available bilateral/multilateral debts. This has been done by the government, where Indonesia has succeeded in issuing bonds in USD valued at USD 4.3 billion (IDR 68.6 trillion) in which investors are excited about this issuance, reflected on the Ministry of Treasury initial target of only issuing USD 3 billion, but the offer received reached USD 9.8 billion. 

If in the worst case scenario the market cannot absorb the entire bond issuance as targeted, based on Perppu Covid-19, Bank Indonesia is given the discretion to buy Government bonds in the primary marker as a lender of last resort to assist the government and lessen the pressure in Government bond market. 

Rupiah reached IDR 17,000 per USD, weaker than it was during 1997 crisis. Does this mean the current condition is worse than the condition in 1997?

In our opinion, Indonesia economic fundamental is much better than in 1997. The current macroeconomic structure is also better than the market correction on 2013 Fed Tapering. Here is the comparison:



(financial crisis)



(Fed Tapering)







Inflation (YoY)




(Feb 2020)

Current account

(% of GDP)




Forex reserves

USD 18 billion

USD 99 billion

USD 130 billion

(Feb 2020)

Credit rating





Source: Bloomberg

Structurally Rupiah exchange rate in the short term is vulnerable to fluctuation if volatility in global market spiked like what’s happening now. The portion of foreign investors that is quite large in bond market – reached 39% before Covid-19 period – creates the risk of short term exchange rate volatility if large outflow happens in bond market. But we are optimistic that after the market panic subsides, investors will return to Indonesia, attracted by Indonesia economic fundamental that is still solid. 

What is your view on corporate bonds currently? Does the default risk increase due to Covid-19 disturbance and Rupiah weakening? 

In this period, it is very important to analyze corporate bonds in bottom-up approach because the impact of the current condition is different to each companies, depending on many factors such as their business model, balance sheet condition, financing, and cash flow. For instance, the impact of Covid-19 on companies in telecommunication sector is maybe relatively limited because there is increase of data usage as people are working from home and social distancing. On the other side, companies that rely on USD financing will face higher risk due to Rupiah weakening. Internally our investment team will continue to analyze the impact of the latest economic condition to the companies’ health and the whole portfolio. In corporate bonds investment, we have a team of experienced internal analysts with good qualifications, so that we don’t have to rely on external rating agencies (such as Pefindo and Moodys). 

Is there a catalyst for bond market ahead? 

As mentioned before, so far the monetary and fiscal stimulus issued by central bank and the government has succeeded in supporting market sentiment, as can be seen in bond yields and Rupiah exchange rates that are stabilizing. The decline of virus outbreak will be the main catalyst that will support market sentiment. When market sentiment improves, we are optimistic Indonesia bonds will attract investors. Currently Indonesia government bonds yield is around 8.2%, a very attractive level for a country with investment grade rating, especially in current environment where many global government bonds have near 0% yield or even negative. Relatively, the spread between Indonesia 10-year government bond yields with UST’s is currently around 730 basis points, far higher than the 3 years average in around 480 basis points, indicating the very attractive Indonesia bonds valuation. In our view, that if market sentiment improves, 10-year government bond yields has the potential to go down to 6.5%-7%.

What is your portfolio strategy in the current market condition? What is your advice for the investors in the current market condition? 

Our current portfolio position is very fluid and dynamic with portfolio duration in range of slight underweight – neutral against the benchmark. With this strategy, some of the Fixed Income portfolios we manage succeeded in minimizing correction, resulting in a relatively better performance compared to bond market index (Bloomberg Bond Index Indonesia).  We closely monitor the global development of Covid-19 and the potential rebound in bond market when the virus spread is more manageable. For the risk factor, we keep monitoring the development in the government stimulus financing and its impact on bond market. My advice to the investors is do not panic. Learn from previous experience, extreme market corrections are usually followed by fast rebound period, “when there is volatility, there is opportunity”. Therefore, the correction condition such as now is the ideal time for investors to buy or add their investments.



Seeking Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Presented in the Question and Answer format, Seeking α is aimed at presenting the views   of MAMI's forward-looking investment experts, directly before you, MAMI's professional investors.
This month, we feature updated market commentaries from Senior Portfolio Manager, Syuhada Arief. 

Syuhada Arief
Senior Portfolio Manager – Fixed Income


Owns Deputy Investment Manager license from Capital Market Supervisory Agency and Financial Institution (Bapepam-LK) according to the decision letter of Chief of Financial Services Authority (OJK) No.KEP18/BL/WMI/201. Before joining PT Manulife Aset Manajemen Indonesia, Arief worked as Senior Fund Manager at CIMB Principal Asset Management. Arief started his career at Asuransi Jiwa Manulife Indonesia and continued on at Avrist Assurance as Fund Manager. Arief acquired the titles of Master of Financial Management and Master of Professional Accounting from Australian National University (ANU) and have acquired the title of Bachelor of Mathematics from Bandung Technology of Science (ITB) and has passed level 1 of CFA.





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