- Foreign investors continue to flee emerging markets across Asia, recording a third month of solid outflow in June.
- New outflows from the region ex-China totalled $US30.2 billion last quarter, the largest amount since late 2016 when Donald Trump won the US Presidential election.
- Year-to-date, net outflows from the region have now exceeded those seen during the “taper tantrum” in 2013.
Foreign investors continue to flee emerging markets across Asia, recording a third month of solid outflow in June.
According to ANZ Bank, excluding Chinese markets, net outflows from the region totalled $US9.7 billion, driven by escalating trade tensions between the US and China.
Stocks or bonds, nothing was immune to the unwind in investor positioning.
Outflows from stocks totalled $US7.8 billion, and were board-based across the region. Bond outflows totalled $US1.9 billion during the month.
On top of outflows reported in prior months, Khoon Goh, Head of Asia Research at ANZ, said it rounded off a weak quarter and half for foreign capital flows.
“For the June quarter, outflows totalled $US30.2 billion, the most since Q4 2016 which was caused by the US presidential election,” he said.
“For the first half of 2018, total outflows were $US24.8 billion, the highest since the second half of 2015 when the Chinese equity market correction and RMB devaluation triggered widespread foreign selling.
“Cumulative outflows year-to-date have surpassed even that seen during the 2013 taper tantrum episode.”
A lot in other words, reversing the trend seen throughout 2017.
Despite the lift in trade tensions between the United States and China last month, net foreign inflows into Chinese bonds continued to increase, lifting by an impressive $US13.3 billion.
“Despite the escalation in US-China trade tensions in June, foreign demand for onshore China bonds stayed strong,” Goh said.
$US12 billion of those inflows went directly into Chinese government bonds, lifting the proportion held by offshore investors to 7.3%, the highest level on record.
Data on capital flows to and from Chinese stocks have not been released as yet by the People’s Bank of China.
Despite the continued enthusiasm expressed towards Chinese bonds, Goh doesn’t expect a reversal of recent trends will return in the near-term.
“With the US Federal Reserve expected to continue with policy normalisation and trade tensions unlikely to ease anytime soon, a swift return to foreign inflows is unlikely in the near term,” he says.
“Typically, we can expect to see a halt to the selling after the magnitude and duration that has been experienced so far this year.
“Data over the early part of July suggests that outflow pressures remain, with equities recording $US1.4 billion of outflows in the first week though bond markets are showing signs of inflows returning.”
Led by a sharp turnaround in Chinese stocks and yuan over the past two sessions, markets across the Asia have rallied hard despite the implementation of tariffs on $US34 billion of the others imports between the United States and China.
Along with short covering after months of selling pressure, this also reflects that there has been no new firm announcement on the introduction of further tariffs from either side.
Whether that remains the case is another question, potentially curbing enthusiasm from offshore investors to buy back in aggressively.