(Bloomberg) — BlackRock Inc. remains a fan of long-dated Indonesian government bonds, saying the high-yield debt offers enough risk compensation in the face of local political instability.
The world’s largest asset manager has recently increased holdings of such bonds due in 10 to 15 years, shifting positions from shorter tenors, said Navin Saigal, BlackRock’s head of fundamental fixed income for Asia Pacific. The additions resulted from the longer-tenor notes’ milder reaction to Bank Indonesia’s surprise interest rate cut and the Federal Reserve’s dovish rhetoric last month, he said.
“The recent headlines, in and of themselves, have not caused us to change any positions in Indonesia,” Saigal said. “While I certainly think the situation warrants monitoring, it reinforces the notions that having sufficient risk premium, or margin of safety, in an investment is of utmost importance, and that a diversified approach is critical.”
BlackRock’s latest endorsement of Indonesian bonds came after the Southeast Asian nation suffered further stock and debt selloffs, following fresh weekend protests against rising living costs and inequality. Political instability, which is also affecting Thailand now, is prompting a rethink among many investors about the region’s economic outlook and the benefits of further monetary easing by local central banks.
President Prabowo Subianto canceled a trip to China following the deadly unrest as demonstrators targeted the homes of Indonesia’s finance minister and several lawmakers. On Sunday, Prabowo announced parliament will remove hefty lawmaker perks that had been a source of ire for many protesters.
Despite the latest market turbulence, Saigal said a “real yield” of about 3% on Indonesian bonds is “a decent margin of safety.”
–With assistance from Marcus Wong and Prima Wirayani.
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