Asian Equities Witness Foreign Outflows For A Fifth Successive Month

Data from stock exchanges of top Asian nations indicate that foreign investors withdrew about $3.7B from Asian equities. The stock exchanges under consideration include that of Thailand, Taiwan, India, The Philippines, Vietnam, South Korea, and Indonesia. But the data also remarked that the outflows for last month were the smallest since the beginning of the year.

30 days investment inflows by foreigners in Asian equities. Source: Reuters

Analysts’ Opinion Of The Cause Of The Foreign Outflows

One of the top strategists at BNB Paribas, Mmanishi Raychaudhuri, shared his opinions on this matter. He noted that “equities are being sold globally due to rising real rates and fears of a possible recession. However, many investors are selling more of their Asian equities because of certain updates from the government.”

He further said, “The government hints it will likely enforce quantitative tightening measures and raise interest rates.” In March 2020, the rise oil prices have given investors’ worries about a possible decrease in the value of the Rupees. Hence, the majority of them sold Indian equities worth more than $5.19B. That was the highest worth of Indian equities ever sold till now.

Consequently, India’s inflation rates rose to new multi-year peaks. Also, the Indian Rupee reached its lowest against the dollar. Similarly, there were some outflows from Indonesian and Philippine equities. Despite these outflows, some nations still had inflows. South Korea, Taiwan, and Thailand’s inflows were $168.5M, $819.5M, and $612M, respectively.

Asian currencies’ YTD performance against the USD. Source: Refinitiv

Supply Chain Re-Routing And Predictions For The Rest Of The Year

With markets diversifying their dependence on China, some of their neighboring nations have been enjoying the gains from it. Countries gaining from this change of supply chain routing include Thailand, Indonesia, and Vietnam. According to some analysts, the intense selling by foreigners has had little effect on regional equities this time.

The analysts suggest that the strong foreign reserves of the central banks of these regions have greatly helped these equities to withstand the intense selling pressure. Some of these analysts added that the improvement of these economies’ fundamentals has also helped.

An analyst with TD Securities, Alex Loo, said he doesn’t expect huge outflows again for the remainder of this year. He explained that the Fed enforced a similar quantitative tightening five years ago.

The result was that Asia and us equities (S&P 500) rose in almost equal proportions. Thus, there was an equity inflow. According to Loo, the same effect is likely to happen again this year. He also said, “there is an increase in foreign reserves now. Hence, they would withstand any intense selling pressure even when US Fed increases rates.”

According to analysts at the MUFG bank, “it is becoming more likely that the huge sell-off of the Yen is now over. An additional rise in commodity prices will boost the turnaround of the Yen”. However, they also said that they can’t say this turnaround will remain for long. The reason is that there is still doubt over financial conditions all over the world.