India Set to Outrank Indonesia as Top Asian Trade with High-Yield Battle

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In the realm of high-yield investments, India is poised to surpass Indonesia as the leading trade destination in Asia. With its robust economy and favorable market conditions, Indian assets are attracting investors, including industry giants like Amundi SA and HSBC Holdings Plc. This article explores the factors that make India a standout choice over Indonesia and highlights the appeal of Indian rupee assets.

Indian Rupee’s Carry Returns and Promising Outlook

The Indian rupee has demonstrated impressive carry returns, making it the second best-performing currency after the Indonesian rupiah in 2023. However, market experts anticipate a shift in fortunes during the second half of the year, favoring the Indian rupee as the preferred investment option. Data compiled by Bloomberg reveals that the Indian currency offers a higher compensation for risk compared to the rupiah, with a carry-to-risk ratio of 2.8, significantly surpassing Indonesia’s 0.5.

High Bond Yields and Stable Currency Boost Indian Assets

India boasts the highest bond yields among major Asian nations, further enhancing the appeal of its assets. Additionally, the central bank’s intervention has contributed to a less volatile currency, creating a favorable investment environment. This stability, coupled with attractive carry returns, has captured the attention of foreign investors who have poured $10 billion into Indian stocks this quarter, propelling the rupee to the top of currency charts.

The Attractiveness of the Indian Rupee and Macro-Financial Stability 

Alessia Berardi, Head of EM Macro and Strategy Research at Amundi, highlights the attractiveness of the Indian rupee due to its carry returns and macro-financial stability. For those seeking exposure to Asia or managing an Asia-specific portfolio, the Indian rupee emerges as a currency of choice.

Investor Sentiment and India’s Growing Economy 

Investor sentiment toward India is on the rise, thanks to its rapid economic growth, which outpaces many major world economies. Foreign funds are locking in high yields by investing in Indian debt denominated in local currency, with the central bank expected to maintain interest rates until early next year. This rate pause further enhances the appeal of Indian assets to foreign investors.

Yield Comparison and Rupee’s Low Volatility 

Comparing yields, benchmark 10-year Indian bonds offer a lucrative yield of 7.07%, surpassing the 6.30% yield on similar-maturity Indonesian notes. Investors who have borrowed dollars to invest in rupiah-based fixed-income assets have earned 4.5% in the first half of the year, whereas their Indian counterparts have earned 2.1%. Furthermore, the Indian rupee’s low volatility positions it as a strong candidate for carry trades, while the Indonesian rupiah may experience higher volatility due to its significant reliance on commodity-related exports.

Rupee’s Impressive Stability and Implied Volatility

The Indian rupee has exhibited remarkable stability, as indicated by the one-year implied volatility, which declined by over 100 basis points in 2023 to reach 5.21% on June 23. This figure represents the lowest volatility in Asia, second only to the Hong Kong dollar, according to data compiled by Bloomberg. The rupee’s stability further adds to its appeal as a safe and reliable investment option.

India’s ascendancy over Indonesia as the leading Asian trade destination is fueled by its high-yield battle and favorable market conditions. The Indian rupee’s impressive carry returns, macro-financial stability, high bond yields, and low volatility have positioned it as the preferred choice for investors seeking exposure to the Asian market. With its user-friendly and informative content, this article aims to provide valuable insights into the potential of Indian assets and their ability to outrank other investments in the region.