Economy 3 MIN READ

GRAPHIC-Foreign outflows from Asian equities hit seven-month high in Jan

February 7, 2022By Reuters

By Gaurav Dogra and Patturaja Murugaboopathy

Asian equities faced big outflows in January on concerns over a surge in U.S yields, with the Federal Reserve indicating that it would be more aggressive in tightening its monetary policy this year.

Cross-border investors sold Asian equities worth a net $8.41 billion in South Korea, Taiwan, the Philippines, Vietnam, Indonesia and India in the last month, according to Refinitiv data. That marked the biggest outflow since July 2021, data from regional stock exchanges showed.

MSCI Asia Pacific Index .MIAP00000PUS dropped 4.36% in January, marking its biggest monthly decline in six months.

“With the uncertainty revolving around how aggressive the Fed needs to be, rising bond yields seem to prompt some risk-off moves in the markets which led to outflows in Asian equities,” said Jun Rong Yeap, market strategist at IG.

Indian equities led the outflows with net sales worth $4.4 billion, the biggest since March 2020. Analysts said the outflows were mainly due to higher valuations and profit taking by investors after its rally last year.

Despite the heavy selling by foreigners, India’s NSE index .NSE dropped just 0.1% last month, propped by resilient buying by its domestic investors.nL4N2U61BA

South Korean and Taiwanese equities also faced outflows worth $3.28 billion and $1.35 billion respectively in January, as their tech stocks were hit by a spike in U.S. interest rates last month.

On the other hand, Indonesian and Thai equities received inflows worth about $400 million each.

Indonesia’s economic growth accelerated in the final quarter of last year, as consumption perked up following the easing of anti-virus mobility restrictions and as stronger commodity prices pushed exports to record highs.nL4N2UF0R6

Overall, analysts were not very pessimistic about the prospects of flows into Asian market equities, despite their vulnerability to the Fed tightening this year.

“Fiscal and current accounts are in better shape than before, which helps the policy support toolkit. Modest valuations, light investor positioning and fundamentals are buffers for Asian and EM stocks to withstand near-term volatility,” said Zhikai Chen, head of Asian Equities at BNP Paribas Asset Management.

“We continue to focus our active stock selection in selected technology names, consumption turnaround, robust financial companies, as well as the appeal of Indian and ASEAN digital opportunities”.

Monthly foreign investment flows: Asian equities

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Shailesh Kuber)


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