Randomly Noted

The Indonesian rupiah’s strength is highlighted in today’s “Money Talks” column by DJN’s Rosalind Mathieson; she writes that a politically stable, economically promising Indonesia has given the local currency a big boost (especially compared with the rest of Southeast Asia.) There are risks, but relatively minor ones. Volatility surrounding July’s presidential election isn’t much of a worry, in my view, given the likelihood of Yudhoyono’s peaceful re-election. Rising crude oil prices could swell the fiscal deficit, thanks to the government’s addiction to fuel subsidies. Upside factors include the resource-rich economy’s exposure to a recovery in commodity prices, although Ros points out that a stronger U.S. dollar could weaken the rupiah’s appeal. Speaking of the dollar’s allure, Brown Brothers Harriman weighs in on the just-ended BRICs summit in Russia, saying chit-chat about those countries buying each other’s bonds at the USD’s expense is a “gross exaggeration.” BBH’s Marc Chandler notes “it is not immediately clear how China will get the roubles” to buy Russian bonds and vice versa. He chalks the talk up to political grand-standing, saying, “There is a reason that the bulk of world trade is invoiced in two currencies – the dollar primarily and the euro secondarily.” Non-convertible currencies in closed-market countries – such as the rouble and renminbi – “are simply not going to mount a serious challenge to the dollar’s role,’” Chandler writes.Meanwhile, USD has strengthened this week but emerging-market local currency bonds remain attractive, write colleagues Kejal Vyas and Claudia Assis of DJN. “Expect them to continue to take the lion’s share of activity” versus USD-denominated EM bonds, they write. Broadly, emerging market currencies have made significant gains in the past three months, and increased liquidity in developing-country markets has “helped investors favor bonds issued in local currencies.” It’s unclear how much upside remains for such bonds, the reporters caution, but they note that fully 66% of trade in emerging market debt involved local currency notes, according to the Emerging Markets Trade Association. If concerns over the dollar continue – thanks to the nattering of BRICs countries and the U.S. government’s debt load – “the bias for local-currency debt will grow stronger,” Vyas and Assis write.