Why should caution be placed on Indonesian debt?

As inflows into government debt stay strong.

Inflows into Indonesian government debt remain strong, with IDR12trn in October (after IDR13trn in September), pushing foreign participation up to 37.8% from 37.3%.

According to a research note from Nomura, inflows have been strong this year and favourable supply--the government hit its gross issuance target for 2014 as of 7 November)--to year-end (along with some optimism around the implementation of a fuel price hike) may help sustain them.

However, beyond that, Nomura noted that it remains cautious on Indonesian debt given the uncertainty around the political and reform outlook.

It also noted that increased participation of foreign investors in the Indonesian debt market makes it more vulnerable to outflows as a Fed rate hike nears.