Some of Asia’s biggest stock and bond markets outside China are seeing greater outflows than in previous market crises, and the process might just be getting underway.
Global funds offloaded a net US$40 billion of equities across seven regional markets last quarter, exceeding any three-month period characterized by systemic stresses since 2007.
The steepest selling was in tech-heavy Taiwan and South Korea and energy-importing India, while foreign investors also made supersized outflows from Indonesian bonds.
Photo: CNA
Money managers are pulling out of higher-risk markets as rampant inflation and aggressive central bank interest-rate hikes sap the outlook for global growth. Fears of a US recession and supply-chain disruptions in Europe and China in a global economy still recovering from COVID-19 lockdowns are providing additional reasons to sell.
“We would expect investors to remain cautious toward export-oriented economies and markets with high valuation under the current backdrop,” said Pruksa Iamthongthong, senior investment director for Asia equities at abrdn PLC in Singapore. “We expect the outlook to remain uncertain for the technology sector globally on rising recession risks.”
The total amount of equity outflows for the quarter is an aggregate of those from Taiwan, India, Indonesia, Malaysia, the Philippines, South Korea and Thailand.
The sum for the past three months was then compared with three previous episodes: the global financial crisis of 2008, the 2013 taper tantrum and the peak of the US Federal Reserve’s last rate-hike cycle in 2018.
Foreigners withdrew a net US$17 billion from Taiwanese stocks, easily surpassing the outflows seen in any of the three previous periods. Indian shares saw US$15 billion of sales, and South Korea reported US$9.6 billion, also exceeding the earlier periods.
The Fed’s aggressive tightening, which is pushing up US yields, is expected to keep drawing money away from the region. Swaps are pricing in a further 150 basis points of rate hikes from the US central bank this year.
“The reason foreign investors are selling shares in those markets is not because something has gone wrong in them, instead, it’s because the Federal Reserve and other central banks are tightening their monetary policy,” said Mark Matthews, head of research for Asia Pacific at Bank Julius Baer in Singapore.
One of the main themes thrown up by the data is selling of technology shares, which account for more than half of Taiwan’s equity benchmark and about one-third of South Korea’s.
The weakening yen is also hurting the economy and equities in Taiwan and South Korea, given that the two countries have similar export products to Japan, said Calvin Zhang, a fund manager at Federated Hermes in Pepper Pike, Ohio.
This is leading to the fear that they will lose market share, he added.
Indian stocks have come under pressure as the economy reels from surging oil prices, while the central bank rapidly raises interest rates to try and bring inflation under control.
“The double whammy for Asia — rapidly tightening liquidity in developed markets and high fuel prices — could continue to weigh on Asian currencies and depress flows into Asian financial markets for the time being,” Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas SA in Hong Kong, wrote in a research note last week.
Bond markets were more mixed with Indonesia seeing outflows of about US$3.1 billion, while South Korea and Thailand saw money coming in.
Moderate bond outflows from emerging Asia “should persist in the second half alongside the narrowing trend of Asia-US policy rate differentials and subdued outlook for Asian growth,” said Duncan Tan, a rates strategist at DBS Group Holdings Ltd in Singapore.
The outlook for US dollar-denominated corporate bonds in the region is also challenging given that spreads offered over Treasuries are becoming less attractive compared with their US peers. Yield premiums on investment-grade Asian bonds fell below those of US debt late last month for the first time in more than two years.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San