Foreign investors continue to shun emerging market stocks in Asia, selling for a third consecutive month in September.
According to ANZ, foreigners sold $US4.8 billion worth of stocks over the month, the largest monthly decline since November 2016.
All markets except Thailand and the Philippines recorded net outflows for the month, led by a $US1.9 billion decline in Taiwanese equities.
Khoon Goh, head of Asia Research at ANZ, said the level of outflows was understandable given ongoing geopolitical concerns and a resurgent US dollar.
“September was an eventful month for markets,” he says.
“Geopolitical tensions were never far away, with North Korea conducting a nuclear test and launching another missile over Japan.
“The FOMC was more hawkish than expected at their meeting, sending US yields higher as markets moved to price in a December rate hike. Talk of tax reforms by the Trump administration also helped push US yields up and strengthened the USD.”
This table from ANZ shows the change in foreign capital flows to stocks and bonds across the region over the past six months.
However, while foreign investors continued to take profits after a solid run for stocks over the first half of the year, the sell-off didn’t extend to bonds which continued to attract inflows.
Excluding China, $US3.3 billion worth of net inflows were recorded, extending the pattern seen in the prior eight months.
“Indonesia saw the strongest inflows, helped by the surprise rate cut from Bank Indonesia,” said Goh. “Malaysia reversed three months of outflows and Thailand, despite low yields, continued to attract foreign bond investors.”
Limiting the total inflow into bonds across the region, South Korea recorded net outflows of $US3.3 billion following a $US1.9 billion redemption in August, something Goh put down to ongoing geopolitical concerns.
Despite Standard and Poor’s decision to downgrade China’s sovereign rating and renewed weakness in the Chinese yuan, demand for Chinese bonds increased during the month with net buying of $US5.8 billion reported.
That was the largest inflow since September 2017 and continued the pattern over the prior six months.
Despite the strength in September, Goh says that demand for bonds may also weaken in the months ahead should US bond yields continue to increase.
“If US bond yields continue to push higher and the USD makes its seasonal recovery into year-end, foreign appetite for Asian fixed income could start to wane,” he says.