UBS From the Ground

Is IDR the New Dollar?
Did the last week simply not happen? Europe appears close to meltdown and Sri resigns, a buying opportunity ensues but frustratingly, after two days, it’s gone and once again we’re back to where we were:

USD/IDR is back to 9,070 (having traded as high as 9,365).
10 Year government bond yields have been bid back to pre-Greece/Sri levels of 8.7% on foreign buying (having peaked at 9.7%).
The JCI has recovered most of the losses it suffered in recent days, and will no doubt continue to trade higher today.
Not for the first time, the Indonesian market has shown itself to be bulletproof. As a reality check, let’s revisit what the market has decided doesn’t need to be ‘priced in’.

Contagion risk: In the past, Indonesian financial crises have resulted from Indonesian corporates no longer having access to global funding markets. While most Indonesian corporate balance sheets are in rude health, there is a minority of (listed) corporates and business groups which are highly geared and are reliant on access to foreign debt markets. Any significant decline in liquidity in global credit markets would be problematic for these companies.
Increased political uncertainty: There are as many different theories as to how the political scene will evolve in coming months. In all this, one thing is clear: Political uncertainty has risen.
Why is the market not more concerned? The answer is that IDR is the New Dollar.

You can learn more when later today UBS hosts a conference call (21.00 Sing/HK, 14.00 London, 09.00 NY – let us know if you’d like the call details) on the following theme:

After Greece: Is EM the New Dollar?
With the Eurozone back in financial turmoil, the independence of the ECB under stress, the long-term sovereign health of the US still a question mark and Japan viewed by some as the remaining "black-swan" risk event, many investors are asking if the emerging currency bloc - and in particular Asia, with visibly better balance sheet and growth fundamentals - could become the new "safe haven" region, or at least the most promising source of medium-term upside against a failing G3 world.