Indonesia assets slide as Moody’s ratings cut hurts sentiment
The resulting sell-off in assets points to investors reassessing the country’s investability, fiscal trajectory and policy direction
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[JAKARTA] Indonesia’s assets slid on Friday (Feb 6) after Moody’s ratings cut the country’s credit outlook to negative, adding to investor unease over fiscal risks and market liquidity.
The country’s stocks tumbled as much as 2.7 per cent, while 10-year bond yields jumped 11 basis points to a four-month high. The rupiah weakened towards the key psychological level of 17,000 per US dollar.
Its credit risk indicators also deteriorated. The cost of insuring Indonesian sovereign debt rose about 4.3 basis points to around 80 basis points earlier, the biggest increase among Asian sovereigns, said a trader.
If sustained, the move would mark the sharpest widening since late September, Bloomberg-compiled data show.
Rajeev De Mello, global macro portfolio manager at Gama Asset Management, said: “I expect Indonesian policymakers to be sensitive to foreign perception of the domestic situation, and to react accordingly.
“However, the market stress could continue until investors see concrete measures. Global investors will be looking for supportive policy statements and measures, before returning to the Indonesian bond and equity markets.”
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The sell-off underscores growing pressure on its assets, as investors reassess the country’s investability, fiscal trajectory and policy direction under its President Prabowo Subianto.
The Moody’s move comes a week after Morgan Stanley Capital International warned that the country’s equity market could be downgraded to frontier status, citing concerns over liquidity and transparency.
Its equities are the worst performers in the world this year, while its bonds and the currency are among the biggest losers in emerging markets.
While Moody’s reaffirmed Indonesia’s investment grade at Baa2 on Thursday, it said that the rating may be downgraded if there is a lack of measures to fix issues on fiscal health, foreign reserves and debt of state-owned firms.
Still, some investors see the nation’s assets becoming more attractive after the sell-off.
Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore, said: “The negative newsflow is allowing value to emerge.”
He added that longer-tenor local bonds are becoming more appealing due to the higher yields, while the nation’s credit spreads are also offering better value now. BLOOMBERG
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