Asian bonds see first monthly foreign inflow in five months

Aug 15 (Reuters) – Overseas investors were net buyers of bonds from emerging Asian markets, excluding China, in July on hopes the United States might slow the pace of interest rate hikes as its economy feels the heat, while concerns over higher inflation levels subsided.

Foreigners moved a combined net total of USD 2.39 billion into Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking their first month as net buyers since February, regulatory and bond market associations’ data showed.

“Some investors are adding back exposures to Asia bonds,” said Duncan Tan, a strategist at DBS Bank.

“Pressures have eased recently due some market expectations of a dovish Fed pivot and an attendant pull-back in the broad US Dollar,” he added, referring to speculation the US Federal Reserve might relax its pace of monetary policy tightening.

Data showed last month the US economy unexpectedly contracted in the second quarter as business spending declined and growth in consumer spending dropped to a two year low.

Investors also scaled back expectations for the size of a Federal Reserve rate hike next month, as US inflation slowed in July.

Foreigners purchased South Korean bonds worth USD 3.56 billion last month in their biggest net buying since December, while Indonesian debt attracted just USD 79 million, after four months of outflows in a row.

South Korean economic growth unexpectedly picked up in the second quarter, boosted by strong consumption.

However, foreigners sold USD 794 million worth of bonds in Malaysia, while India and Thailand recorded outflows of USD 258 million and USD 201 million, respectively.

As the market focus shifts from inflationary concerns to worries over growth, Asian bonds could attract some inflows, analysts said.

“We expect the large foreign bond outflows of 1H to reverse into small inflows in 2H” DBS’s Tan said.

(Reporting by Gaurav Dogra in Bengaluru; Editing by Mark Potter)