Asian equities saw net foreign outflows in June as Covid’s impact was felt across the region again – but observers say the pivot won’t dent earnings recovery in the longer term
Increasing inflationary pressures and Covid surges curbed foreign investors’ appetite for Asian equities last month.
Foreigners turned net sellers in June for a second consecutive month as cross-border investors sold a combined net total of $725 million worth of equities in South Korea, Taiwan, the Philippines, Vietnam, Indonesia and India, data from stock exchanges showed.
That took the tally to $24.6 billion outflows in the first half of the year, compared with total inflows of $21.6 billion in the second half of last year.
Asian equities have lagged behind the US and European equities’ rally this year, undermined by a spike in Covid-19 infections and inflation concerns.
But the shift in flows this year doesn’t suggest a dent in earnings recovery hopes for the region, Herald van der Linde, head of Asia equity strategy at HSBC, believes.
“We have seen stronger and higher bond yields weigh on Asian equities. That led to a rotation from Asian equities into developed market equities,” he said.
Taiwan and South Korea led the outflows last month, facing net sales of $2 billion and $795 million, respectively. Thailand, Vietnam, Philippines also witnessed outflows.
South Korea has seen a spike in coronavirus cases, fuelled by the highly contagious Delta variant, while Thailand is also going through a prolonged virus outbreak.
On the other hand, Indian equities secured $2.4 billion worth of foreign money in June, after facing outflows in the previous two months.
Goldman Sachs said Asian equities are trading at a nearly 30% discount versus the United States, and a consolidation in US equities could prompt flows to move into non-US equities including Asia.
“Asian markets remain fundamentally strong, and any outflows are more about re-balancing than anything else,” Paul Sandhu, head of multi-asset quant solutions at BNP Paribas Asset Management, said.
- Reporting by Reuters