- Foreign investors dumped emerging market stocks across the Asian region last month, registering the largest outflows since August 2011.
- Even with modest net buying of bonds, net outflows were still the largest since the 2016 US Presidential Election.
- Inflows have returned to the region in the early pasts of November, helped in part by hopes of a trade deal being reached between the US and China later this month.
Foreign investors dumped emerging market stocks across the Asian region last month, registering the largest outflows in more than seven years.
According to ANZ Bank, capital outflows ballooned to $US15.5 billion, snapping two months of tentative buying from investors.
The drawdown was the largest since the European debt crisis.
“The outflows from the region’s bourses was the largest since August 2011, a period when the European debt crisis was a key concern and the US lost its triple-A rating,” said Khoon Goh, Head of Asia Research at ANZ Bank.
“The effects of US-China trade tensions are starting to show and concerns over slowing growth have resulted in heavy foreign equity selling.
“Even the Hong Kong-China stock connect flows, which had been recording strong inflows into Chinese equities throughout this year, saw outflows of $US1.5 billion, the highest in three years.
As seen in the table below from ANZ, no market was spared the selling pressure with particularly large outflows seen in South Korea, Taiwan, India and Thailand, coinciding, and partially explaining, the slide in emerging market currencies across the region over the month.
However, while stocks were dumped, inflows into bonds actually increased by $US2.3 billion, partially reversing a $US3.2 billion outflow from a month earlier.
It was the third increase in net inflows into debt in the past four months, largely reflecting strong buying of Malaysian debt.
Despite the modest rebound in debt market inflows in September, it was not enough to prevent total outflows from the region jumping to $US13.1 billion, the largest since the 2016 US Presidential election.
After such a significant rout, Goh says inflows to the region have returned in early November. However, in his opinion, whether that is the start of a longer-lasting trend will largely be determined by progress in trade negotiations between the US and China.
“Comments from US officials about the upcoming meeting [on the sidelines of the G20 meeting in Argentina] between US President Trump and Chinese President Xi Jinping raised hopes that some easing in trade tensions could be possible,” he said.
“This led to a recovery in inflows, with Asian equities receiving $US2.3 billion and bonds seeing $US1.6 billion of inflows over the first seven trading days in November.
“With the US mid-term elections now out of the way, there is a lot riding on the outcome of the Trump-Xi meeting.”
Goh’s not expecting a miraculous trade breakthrough from this meeting, although he expects both sides may look to release statements to help calm investor nerves.
“We will not be surprised if both parties release warm statements on bilateral trade,” he said.
“This could be sufficient to provide temporary relief to markets and will have an important influence on portfolio flows in Asia into the end of the year.”