Bond Market Sluggish after Voting Result: Analyst
16 July 2014 10:24 WIB
TEMPO.CO, Jakarta - The Indonesian bond market is expected to weaken after the voting result announcement on 22 July. Chief researcher at Trust Securities, Reza Priyambada, said the market will again face risks of uncertainty.
"The uncertainties arise because candidate number one, Prabowo Subianto and Hatta Rajasa, signed the Merah Putih coalition pact in the body of parliament," he told Tempo yesterday.
According to Reza, if the Election Commission (KPU) announces candidate number two, Joko Widodo and Jusuf Kalla, as winners, the pair will receive challenges from the Merah Putih Coalition, which he predicted would complicate or oppose Joko Widodo's policies. Similarly, if Prabowo wins, there is potential resistance from Jokowi's camp.
"Had Prabowo not sign the integrity pact, there is a huge possibility that the market would be just fine," he said.
On Monday, seven political parties joined in the Merah Putih Coalition signed an integrity pact, pledging their support for Prabowo with the confidence that the man would win the election and become Indonesia's 7th president. The parties are Gerindra, PAN, PKS, Golkar, PPP, Bulan Bintang, and Demokrat.
Reza said the political uncertainties will prompt investors to wait until the election is over and things are safe.
Nevertheless, he said, a sluggish bond market will not urge traders switch to other investment instruments, such as stocks. Because the index will also stagnate or even fall should if there are unrests following the voting result announcement.
"So far, the only commotion happening is between the media and the social media. We hope there would be no physical contact," he said.
The weakening of the bond market will also be triggered by rising inflation and high interest rates. If the BI Rate is raised to 7.75 percent, Reza said, the market will not fluctuate much. However, if BI Rate is up to 8.0 percent, there will be huge market turmoil.
For long-term bonds, Reza predicted a price decline of 30 to 40 basis points (bps). As for short-term bonds, prices are projected to drop by 15 to 20bos.
According to Indonesia Stock Exchange (IDX) data, the total bonds and sukuk issuance as of June 2014 reached Rp26.49 trillion. IDX director for corporate valuation, Hoesen, estimated the total value of bonds and sukuk issuance in the second half would reach around Rp26 trillion, each.
DEWI SUCI RAHAYU
