Foreign investors continued to pile into emerging markets across Asia in May, encouraged by low volatility, a weaker US dollar, falling US bond yields and improved economic data across the region.
According to analysis from ANZ, net inflows into bonds and stocks across the region totalled $14.2 billion for the month, continuing the pattern seen since the beginning of the year.
As seen in the chart below, that’s also in stark contrast to the large outflows from the region in the final three months of 2016, something driven by higher US bond yields and dollar at the time.
They’ve subsequently fallen, and inflows to the region have subsequently increased.
This table from ANZ shows the split between equity and bond inflow by individual nation.
Inflows have not only been strong but consistent across the region, something Khoon Goh, head of FX research at ANZ, says will likely continue should the current status quo of better economic data, low volatility, US dollar weakness and falling US treasury yields persist.
Here’s his take.
The strong inflows over the past five months have helped push the region’s equity prices up over 20% year-to-date, while both Asian currencies and bonds have gained by around 4.5%. The better regional economic data, lower US bond yields and a weaker USD has been key drivers behind the strong inflows. Unless any of those factors change, we can expect a continuation of inflows. However, given that investor positioning in the region is less light compared to earlier in the year and there are growing signs that Asian growth momentum could be starting to ease off, a moderation in the flows can be expected.
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