Indonesian bonds are top pick for Schroders on Purbaya, BI bets

[MUMBAI] Schroder Investment Management favours Indonesian bonds and the rupiah as its top picks in Asia, betting that government efforts to boost growth and expectations of further interest-rate cuts will draw foreign inflows.

The bullish view comes as new Finance Minister Purbaya Yudhi Sadewa channelled about 200 trillion rupiah (S$15.6 billion) of government cash reserves kept at the central bank into state lenders to boost credit, a shift from his predecessor Sri Mulyani Indrawati’s approach of building fiscal buffers.

“We are beginning to see the new finance minister coming across as quite prudent,” Julia Ho, head of Asian macro at Schroder, said in an interview in Singapore. “They have a lot of cash on the central bank’s balance sheet. Why not use that to create more loans?”

The rupiah, Asia’s worst-performing currency this year, may benefit from the plan, Ho said. Faster credit growth would signal stronger local demand, improving the growth outlook and supporting the currency. That could help attract foreign inflows, while a firmer rupiah would give Bank Indonesia scope to cut rates further.

The call comes as Indonesia’s markets diverge. Sovereign bonds have had a good run, returning 2 per cent in October alone, while equities have underperformed the region, the Jakarta Composite Index’s near 15 per cent gain this year trails the MSCI EM Asia Index amid foreign outflows and concerns over possible re-weighting of local shares.

Schroders, which manages about US$1.1 trillion globally, is taking a different view from peers such as Principal Asset Management, which sold Indonesian government bonds earlier this month after Purbaya’s appointment in September. Ho prefers local bonds with tenors of up to five years, expecting the curve to bull steepen, with shorter yields falling more sharply than longer ones.

She expects Bank Indonesia (BI) to lower rates by at least 50 basis points in the next six to 12 months. The authority could squeeze in a further 25-basis point cut if the currency stabilises, a reduction not yet priced in by markets, Ho added.

Bank Indonesia cut rates unexpectedly in mid-September, its third in as many meetings, to support the economy after protests over job losses and low wages. It paused this month, prioritising currency stability.

Former finance minister Indrawati amassed about 45.4 trillion rupiah in standby cash in 2024. By the time Purbaya took over in September, he estimated the multi-year cash pile had grown to about 400 trillion rupiah.

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Indrawati was good, but that does not necessarily mean Purbaya “is going to be reckless”, Ho said. “He may be growth biased, but he’s not talking about growth at any cost.” BLOOMBERG