By Gaurav Dogra and Patturaja Murugaboopathy
(Reuters) – Foreigners turned net sellers of Asian equities in June for a second consecutive month, as growing inflationary pressure and a spike in coronavirus cases in the region tempered risk appetite.
Cross-border investors sold a combined net total of $725 million worth of equities last month 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 U.S. and European equities’ rally this year, undermined by a spike in COVID-19 infections and as inflation levels raised concerns that the U.S. Federal Reserve might hike its interest rates earlier than expected.
Foreign investments in Asian equities https://fingfx.thomsonreuters.com/gfx/mkt/oakpedooavr/Foreign%20investments%20in%20Asian%20equities.jpg
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, said.
“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 vs the United States, and a consolidation in U.S. equities could prompt flows to move into non-U.S. 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 Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sherry Jacob-Phillips)