In high-yield revival, global funds prefer Indonesia over India

Indonesian bonds appear more promising than India’s in a contest between Asia’s high-yield heavyweights, according to two of the world’s biggest investment funds.
 

The archipelago’s debt is more attractive due to a superior fiscal outlook and the greater potential for currency strength, says JPMorgan Asset Management. Indonesia’s bonds also have more upside than India’s after suffering more heavily in the virus sell-off, according to BNP Paribas Asset Management.

“We favour Indonesian debt as fiscal challenges are less severe there,” said Julio Callegari, lead fund manager for Asia local rates and currencies at JPMorgan Asset. “We hold a small position in India debt and don’t intend to increase. In Indonesia we hold a larger position which we might increase it.”

The debate among investors over the relative merits of Indonesian and Indian bonds illustrates the shift in markets that has taken place in recent weeks. Risk assets largely rallied across the board in April and May as sentiment rebounded from coronavirus sell-off. That period has now given way to one of greater caution where buyers should put their money.

One of those places is Indonesia. The nation’s local bonds have returned 22 per cent this quarter in dollar terms, reversing the 17 per cent decline from January to March, according to Bloomberg Barclays indexes. Indian securities have gained just 3.3 per cent in the current quarter, following a 1.4 per cent loss in the prior three months. 

“The recession in India is likely to be deeper than in Indonesia and the fiscal deterioration larger. Given India’s already larger debt and fiscal deficit and lower credit ratings, this contributes to our relative preference for Indonesian debt,” said Callegari.