Global Money Trickles Back Into Most Unloved Asian Stock Markets
Foreign funds are showing signs of a return to Asian emerging-market stocks as recent declines in oil prices and the dollar bring some relief.
(Bloomberg) -- Foreign funds are showing signs of a return to Asian emerging-market stocks as recent declines in oil prices and the dollar bring some relief.
Overseas investors bought a net $2 billion of stocks in markets including India, South Korea and Taiwan this week, according to the latest available exchange data compiled by Bloomberg, excluding China. That puts them on course for their biggest weekly purchases since early June.
NOTE: Data for India, Indonesia, Malaysia, Philippines, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam
“A softening in the US dollar over the past week has brought some stability to local currencies, and some inflows into EM markets, which has helped support a tentative recovery in stocks,” said Marvin Chen, an analyst at Bloomberg Intelligence.
Still, it’s too early to say if the reprieve marks the start of a new trend. Worries about the global economy remain intact and negative surprises on inflation and interest rates may resume a selloff that saw outflows from Asia emerging markets, ex-China, more than double so far this year, compared with all of 2021.
Read: Unstoppable Dollar Risks Worsening $71 Billion Asia Stock Exodus
The Federal Reserve is expected to raise rates again at its meeting Wednesday, with officials having signaled support for a 75-basis-point move.
“Whether this will continue may depend on the tone of next week’s expected Fed hike or signs that the US is moving past peak inflation,” Chen said.
Beating Back
In South Korea, the benchmark Kospi Index has jumped 2.7% this week, heading for its best performance since early February. Hedge fund J&J Investments Co. is increasing its position in Naver Corp. and other tech shares on expectations the nation’s equity market will stage a recovery from a brutal first half.
Taiwan’s Taiex index also added 2.7% this week, while the S&P BSE Sensex in India has gained more than 4%.
“Treasury breakeven rates have fallen a lot too and now stand near the lowest levels since the fourth quarter of 2021, suggesting the markets think the Fed-led effort to beat back inflation is working,” said Ilya Spivak, head of Greater Asia at DailyFX. “That has helped revive risk appetite, and encouraged flows into the EM space.”
Spivak warned that the flows back into emerging Asia might not be sustained, though. “Phase two of reckoning with this tightening cycle will be that markets come to terms with structurally higher rates for an extended period,” he said. “That will cool risk appetite.”
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