Foreign investors continue to pile into emerging markets across Asia, recording net capital inflows for a fourth consecutive month in April.
According to research from ANZ, $US11 billion worth of stocks and bonds were purchased during the month, taking total inflows so far this year to $US40 billion.
As a result, the $US33.2 billion in capital outflows during the final three months of 2016 — driven by Donald Trump becoming US president and the rate hike delivered by the US Federal Reserve in December — have now been entirely unwound.
This chart from ANZ shows the move from outflows to inflows over the past seven months. As it indicates, weakness in the US dollar was likely one factor that contributed to the reversal. Where it moves, capital flows tend to do the opposite.
Khoon Goh, head of Asia research at ANZ, said that the inflows recorded in April were broad-based in nature with only Indian equities, along with Philippine and Thai bonds, recording modest outflows during the month.
The table below, from ANZ, shows the inflows.
At $US7.3 billion, the vast majority of capital flowed into bond markets, something Goh put down to lower US bond yields.
“Lower US 10-year bond yields in April likely spurred the strong $US7.3 billion inflow into the region’s debt market, with China adding a further $US1.6 billion,” he said.
Equity inflows totalled $US3.7 billion for the month.
According to Goh, the rekindled enthusiasm for bonds and stocks across the region suggests investors are pricing in expectations of a strong rebound in the region’s growth with geopolitical concerns around North Korea taking a back seat.
However, he’s not overly convinced that the scale of inflows will be reported in the months ahead.
“While Asian export growth remains strong, recent data suggests we may be close to a peak in growth momentum, judging from the latest PMI readings,” he says. “And with expectations for a US Federal Reserve rate hike for June fully priced, some moderation in the region’s inflows can be expecting in the coming months.”