Market Update Bancassurance August 2020

In the last FOMC meeting, The Fed stated its commitment to uphold monetary stimulus and accommodative policy to support US economic recovery. Is this condition supportive to Indonesia bond market?

The Fed’s accommodative policy is positive impact for Indonesia bond market. We project that The Fed’s low interest rate policy will cause US Treasury yield this year to remain under 1%, which makes Indonesia Government Bond yield remain attractive with yield spread of above 550bps. We estimate that The Fed’s accommodative policy will be kept at least until 2022 to support liquidity and economic recovery process. Low interest rate era will encourage fund flow to switch to asset that offers more attractive yield, such as Indonesia bond. Currently, Indonesia bond – both in rupiah and in dollar – offers attractive yield spread with US Treasury and the yield difference has not yet return to pre-pandemic period.

Compared with stock market, it seems bond market is more “immune” to the concern about the second wave and the increase of domestic Covid-19 case numbers. Any comment on this?

Actually Indonesia bond market is not totally immune, it’s just investors focus more on yield hunting theme amidst flush liquidity in the banking system. Indonesia bond market seems to be more immune than stock market because it is supported by attractive real yield of Indonesia bond – one of the highest in the region – and high banking liquidity due to low distribution of credit this year. High banking liquidity caused the increase in short and long tenor bond demand. Other domestic macro factor such as interest rate and rupiah outlook that are tend to be stable also supports Indonesia bond market performance. The reversal of investment sentiment – foreign capital inflow in substantial amount – considering foreign ownership that is as low as <30% has the potential to cause 10 year tenor Indonesia Government Bond to go down even lower than the current level.

Recently the government and Bank Indonesia have agreed on a burden sharing scheme to fund the Covid-19 pandemic stimulus. What is the impact of this policy on the bond market?

So far the market welcomes the burden sharing policy, because this scheme makes deficit funding possible without giving excessive pressure to bond market and at the same time also lightens the government debt burden. The bonds issued in this scheme can be traded in secondary market and can be used by Bank Indonesia for monetary operation. The government and Bank Indonesia have emphasized on many occasions that this policy is a one-off policy, and to maintain market mechanism, Bank Indonesia will only be a stand-by buyer. Interestingly, during the announcement of burden sharing policy last July, Indonesia bond market booked highest monthly hike among emerging market bonds with similar credit level. The increase of foreign inflow that almost doubled the number in July – compared to June – shows bigger tolerance from the investors’ side towards this burden sharing policy.

Economic growth slowdown becomes one of the risk factors that need to be monitored, especially for corporate bonds. What strategy do you apply to minimize that risk in your corporate bond portfolio?

To minimize credit risk in corporate bond we apply tight internal credit analysis – that includes ongoing review and monitoring – limiting investment weighting on each corporate name and sectoral diversification. We focus our investment on high quality companies with good fundamental, strong credit profile, strong parental support, and not affected heavily by Covid-19. So far the applied investment strategy has proven to give good performance booster to portfolio with relatively low volatility. Ahead we will continue to monitor the impact of economic condition to the corporate bond issuers in the portfolio.

What is your current portfolio strategy in navigating current market condition that remain highly uncertain?

We have constructive view for Indonesia bonds market. For Rupiah bond funds, we have tactical overweight duration position – both for short and moderate duration portfolio – to take advantage of BI low exchange rate policy, Rupiah stability, domestic liquidity that is still high and foreign ownership that is still relatively low. For USD bond fund, have tactical overweight duration position, utilizing The Fed accommodative policy and on supportive demand-supply dynamic in the INDON market. We continuously monitor market liquidity and volatility to optimize risk-return profile of our portfolio.



Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Delivered in a Question and Answer format, Seeking α is intended to present the views of MAMI investment experts who are forward-looking, directly in front of you, MAMI professional investors.
This month we present the latest market comments from Director & Chief Investment Officer – Fixed Income, Ezra Nazula. 

Ezra Nazula
Director & Chief Investment Officer – Fixed Income


Responsible for fixed income investment management. Acquired Deputy Investment Manager license from Capital Market Supervisory Agency and Financial Institution (Bapepam-LK) according to decision letter of Chief of Financial Services Authority (OJK) No. KEP20/PM/WMI/2005 on February 15th 2005. Ezra started his professional career at Chase Global Funds, Boston, MA, USA and continued his career at Panin Securities and HSBC Jakarta. He joined PT Manulife Aset Manajemen Indonesia for the first time at 2003 before decided to join AIA as Head of Investment and back to PT Manulife Aset Manajemen Indonesia on November 2011. Ezra acquired MBA title from Northeastern University, Boston, USA.





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