Donald Trump has had an immediate and significant impact on global financial markets since being elected as the next US president a little over a month ago.
Stocks and the US dollar have soared, while bonds and gold have cratered and in emerging markets in Asia, there’s been some enormous foreign capital outflows.
According to new research by ANZ, foreign capital outflows soared in November, logging the largest monthly decline since June 2013 when then US Federal Reserve chair Ben Bernanke first floated the idea of tapering bond purchases as part of the Fed’s quantitative easing program.
That was known as the “Taper tantrum”, so perhaps this is the “Trump tantrum”.
ANZ says $US22.1 billion in foreign capital was yanked from Asian emerging market bonds and stocks last month, accelerating sharply from the levels in October.
“Debt outflows totaled $US12.6 billion, with Malaysia accounting for $US4.5 billion and the Indian debt market seeing $US2.9 billion of outflows,” said Khoon Goh, head of Asia research at ANZ.
“In equities, outflows totaled $US9.5 billion, with Taiwan accounting for over a third of the total at $US3.2 billion. India was not far behind, with foreign investors pulling $US2.6 billion out from the Indian equity market.”
Goh says the surprise demonetisation move by the Indian government on November 8 contributed to the selloff in Indian assets.
As the charts below from ANZ show, the scale of outflows from the region was enormous, except when it comes to capital flows to Chinese bonds. They actually increased.
“The big surprise in the flows number was that foreign demand for China bonds stayed strong,” says Goh, noting that foreign ownership of Chinese bonds increased by $US2.3 billion despite renewed weakness in the Chinese yuan and selling in other Asian markets.
“We suspect that most of the buying came from the official sector, as central banks continue to increase their FX reserves allocation towards the yuan following its inclusion in the IMF’s SDR basket on 1 October,” he says.
AS yet, foreign capital flows to and from Chinese stocks for October and November are yet to be released.
After such a pronounced outflow in November, Goh says that the early indications in December suggest that foreign capital outflows are now subsiding.
“While the brunt of the selling is likely behind us, it is too early to tell if we will get some recovery in inflows,” he says.
“Portfolio flows look set to stay volatile as investors reassess what a Trump administration means for US fiscal and monetary policy, and given the growing political risk in Europe.”
If this chart from ANZ is anything to go by, movements in the US dollar against emerging market Asian currencies will likely determine whether or not foreign capital outflows will continue in the months ahead.
Where the US dollar moves, capital flows to the region tend to do the opposite.