The outlook for oil prices is still the wildcard for the economic outlook across the Asian region, according to the latest market update from Indonesia's Mandiri Investasi.
Adding to the speculation is that central governments are trying to control the amount they spend on fuel subsidies, something made harder by the Indonesian Crude Oil Price that the archipelago nation has to pay being 15% above budget forecasts due to geopolitical tension in the Middle East.
Nonetheless, core inflation in Indonesia this year is down to 4.25%, almost half what it was two years ago notwithstanding it's expected to climb back to 5% by 2013, fuelled by growing economic activity especially in the consumer and property sector that has already lead to import growth slightly outstripping exports.
Mandiri does not, however, expect upward trending inflation to lead to an official interest rate rise although the market is pricing in an increase resulting in bond prices moving down aggressively, they noted.
Mandiri said concerns oil will break through the US$120 per barrel threshold requiring the government to increase its national fuel subsidy and lead to additional inflation is driving the bond price moves, which is in-turn attracting buyers particularly for government rather than corporate bonds and especially from retail investors.
Indonesian corporate bonds remain attractive with average yields of 8.3% based on IDX data, said Mandiri.
"We suggest investors overweight on corporate bonds due to the relatively low yields [of] government bonds in the secondary market [will force] the government [to] be overwhelmingly reliant on foreign investors and Bank Indonesia," they said.
Increasing activity in the Asian bond market, combined with some dampening in the outlook for selected resources, is seeing demand come off for AUD, noting that most Australian government bonds issued are bought by overseas investors and if the choices these buyers have in regional bond markets keep increasing then their unfetted demand for Aussie bonds and consequently the AUD will fall.
Reflecting this, some commentators are already forecasting the AUD to drop back to parity particularly if the carry trade picks reacts to the signals from the pressure the RBA is under to lower rates.
Buy low, sell high. It's a simple refrain but one so often forgotten. And not just by inexperienced retail investors with online broking accounts but by the professional investing community as well.
The ... Watch video
Financial Standard editor Mark Smith presents a roundup of the week's biggest industry news and executive appointments. In this week's news:
Macquarie to face court over van Eyk role
Macquarie Investment ... Watch video
We invite you to watch our latest video featuring Bell Direct chief executive officer Arnie Selvarajah.
In the video and accompanying article he explains how easily the increasing number of advisers using ... Watch video
We invite you to watch our latest video featuring Zurich Investments senior investment strategist Patrick Noble.
The question of how to generate a satisfactory return to meet investors' needs is becoming ... Watch video
With an 8-14% per annum return objective over the long term, the Pengana PanAgora Absolute Return Global Equities Fund is clearly managed by a team with investment acumen and a well thought out process.
Broadly ... Watch video
We invite you to watch our latest video featuring Reece Birtles, chief investment officer of Legg Mason affiliate Martin Currie Australia.
Amid volatile markets, treacherously low term deposit rates and ... Watch video
Get it Daily
FREE to your inbox, get the Financial Standard Daily Email.