Bond investors seeing taper party this time for India, Indonesia

As local-currency bonds in Indonesia joined the recent global debt selloff, Aberdeen Asset Management Plc and Western Asset Management Co. had a simple strategy: buy more.
The money managers see the nation’s securities, along with India’s, as the best bets to weather any selloff in emerging Asia as the European Central Bank prepares to join the Federal Reserve in paring stimulus. Eaton Vance Corp. is on board too, favouring rupiah and rupee bonds for high yields and a positive outlook for the two economies. First State Investments recently sold the notes at a profit, and is waiting for better levels to buy back in the fourth quarter.
“I really don’t think the gradual balance-sheet reduction by either the Fed or ECB will cause much market dislocation over the medium term as it will indeed remain a very gradual process,” said Edwin Gutierrez, London-based head of EM sovereign debt at Aberdeen Asset, which oversaw $385 billion as of March. “We’ve already taken the other side by adding to our Indonesia local position. Should the selloff persist, I think we would consider buying even more.”
An improvement in economic fundamentals since the 2013 taper tantrum and yields that are more than three times those on US. Treasuries have made India and Indonesia the darlings of investors. Recent declines in their bonds, spurred by the prospect of higher developed world interest rates, have proved to be an aberration and foreign funds are already returning to the two markets, which have lured more than $18 billion this year.
India’s case has been bolstered by government reforms — including the implementation of a national tax and opening up of various sectors to foreign direct investments — which are seen underpinning the $2.26 trillion economy, one of the world’s fastest-growing. For Indonesia, a rating upgrade by S&P Global Ratings has boosted sentiment for investors impressed by its success in overhauling taxes, cutting red tape and raising infrastructure spending.
“The fundamentals of both India and Indonesia are much improved since 2013 and we are actually long both of those countries’ bond markets,” said Eric Stein, Boston-based co-director of global fixed income at Eaton Vance, which oversees $393 billion. “Most Asian countries have fairly strong balance of payments positions right now, so currency volatility should be reasonably contained.”
Overseas funds have poured the equivalent of $11.1 billion into rupee sovereign bonds this year, with the securities returning 3.6% in 2017, indexes compiled by Bloomberg show. Investors have earned 9.1% on rupiah notes, which have drawn in more than $7 billion in foreign flows.

— Bloomberg