For the first time this year, foreign investors are selling emerging markets across Asia.
According to ANZ, net outflows ex-China totalled $US2.4 billion in August, the first decline reported since December 2016.
Within that figure, outflows from stocks totalled $US4 billion, masking a further increase into bond markets of $US1.7 billion.
Khoon Goh, head of Asia research at ANZ, said the outflows from stocks, continuing the trend from July, was likely due to a lift in geopolitical tensions on the Korean Peninsula.
“Korea saw the largest outflows in the month,” said Goh.
“Equity outflows picked up from July to $US1.4 billion, the most since January 2016, while debt outflows were recorded for the first time since December 2016.”
All markets except for the Philippines recorded net equity outflows during the month, led by India where foreigners liquidated some $US1.7 billion of worth of stocks.
However, while investor enthusiasm towards Indian equities cooled, they continued to scoop up the nation’s debt with net inflows totalling $US2.4 billion, adding to the buying already seen this year.
“Debt inflows stayed strong, though this is expected to moderate with FII [foreign institutional investor] debt limits close to 100% unless they are raised soon,” says Goh.
Elsewhere inflows were recorded in Indonesia and Thailand while outflows were reported in Korea, Malaysia and the Philippines.
Looking ahead, Goh says that any further escalation in geopolitical tensions could see further outflows from the region, pointing out that net equity outflows of $US1.6 billion have already been recorded in September.
“As tensions are likely to stay high, the risk is that the outflows may also start to spread into the debt market as well, putting downward pressure on asset prices in the region,” he says.
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