Investors turn to government bonds amid market uncertainty
19 May, 2020
Individual investors are showing growing appetite for government bonds (SBN) since the low-risk securities provide promising returns amid uncertain market conditions, financial analysts have said.
Jason Gozali, founder and CEO of Investor Muda, one of the primary investor communities in Indonesia, said that investors’ appetite in SBN was growing.
“So far, retail investors' interest in SBN is increasing since it is considered low-risk compared to other volatile assets,” he said in Jakarta on April 14.
This didn't mean, however, that many investors in the equity market had switched to the bond market, said Jason. On the contrary, many online stock trading sites had seen greater than a 20 percent rise in trading value in comparison to last year’s figure.
More moderate millennial investors desired bonds as their investment vehicle and more aggressive millennial investors generally purchased bluechip stocks while these were still cheap, explained Jason, who is also a fund manager and investment consultant.
“With the ongoing volatile condition and economical [slowdown], investment potential in bond instruments, including retail bonds, have become more appealing,” head of fixed income research Handy Yunianto of Mandiri Sekuritas told The Jakarta Post on April 15.
With near to zero risk, relatively short tenors and attractive yields compared to the marketplace interest rate, government bonds were among the top picks in investment, he elaborated.
Handy shared Jason's view that the growing interest in bonds didn't indicate that equity investors had migrated to the bond market. Each investor had their own risk-return preference, he noted.
“However, investing in bonds might visit a slight increase” on expectations of lower interest rates, he said, stabilizing currency and curtailing monetary growth.
Assistant vice president Adra Wijasena of RHB Sekuritas Indonesia told the Post on Friday that regardless of current global uncertainties prompting retail investors to carry to their cash, investing in SBN was still attractive.
Adra explained that liquidity risk could be minimized so long as the trading volume and frequency of SBN in the secondary market was still “quite good”.
The confidence of retail investors was apparent in the latest issuance of sharia-compliant government retail bonds (Sukri), as the government saw oversubscription of its Sukri SR-012 bond series between Feb. 24 and March 18.
“The general public response was very good," government debt papers director Deni Ridwan of the Finance Ministry told the Post on May 14.
The federal government raised its bond issuance target from an initial Rp 8 trillion (US$537.53 million) to Rp 12.14 trillion, in line with the Finance Ministry's financing and risk management office (DJPPR).
However the Sukri SR-012 saw a little under 24,000 buyers in comparison to 35,000 buyers for the Sukri SR-011 in 2019. The demographics of bond buyers had also changed, with millennials creating 39.58 percent of SR-012 buyers and baby boomers creating 36.5 percent of SR-011 buyers, according to DJPPR data.
“Information on the [bond] type and amount remain under discussion. Hopefully, we will be able to publish the information soon,” Deni said, when asked about the upcoming issuance of retail SBN in June.
The government plans to issue the retail savings bond (SBR) series SBR-010 from June 23 to July 9, in line with the Finance Ministry's issuance calendar.
The government also plans to issue six SBN bonds this season, down from 10 bonds last year. Government bonds have an integral role in financing the state budget and the national COVID-19 mitigation efforts.
“We will prioritize SBN issuance through a market mechanism, including retail [bonds], [valued at] around Rp 50 to Rp 70 trillion,” Finance Minister Sri Mulyani Indrawati said on April 30 at an operating meeting with House of Representatives Commission XI overseeing financial affairs.
Source: www.thejakartapost.com