Asian shares see heavy foreign sell-off in August as trade war bites

Foreigners turned net sellers of Asian equities in August as sentiment worsened with the United States and China, after a brief truce, announcing new tariffs on each other.

Overseas investors sold about $11.2 billion worth of regional equities last month, the biggest monthly net sales since October 2018, data from stock exchanges in South Korea, Taiwan, India, Thailand, Philippines, Indonesia, and Vietnam showed.

The U.S.-China trade war, which intensified in August, stoked fears that the global economy would tip into recession, undermining riskier assets such as Asian equities.

The MSCI's broadest index of Asia-Pacific shares, fell 3.4% last month, its biggest decline since May.

Apart from an escalation of the U.S-China trade war, turmoil in Hong Kong and the risk of a hard Brexit added to the jitters within the market, prompting foreign outflows from riskier Asia, said Jingyi Pan, a Singapore-based market strategist with financial services firm IG.

Taiwan and South Korea - which form a major part of supply chain to China's exports - had foreign outflows of $3.87 billion and $2.49 billion, respectively.

India suffered an outflow of $2.5 billion in the face of worries over declining economic growth, steep share valuations and a prolonged slowdown in its auto sector.

The Indian economy, the third largest in Asia, expanded just 5% on-year in the three months ended June - the lowest pace since March 2013, official data showed on Friday, far below the 5.7% forecast in a Reuters poll.

Indonesia and Philippines saw outflows of $652 million and $226 million, respectively.

Regional shares were also let down by lacklustre earnings performance by Asian firms in the second quarter. Refinitiv data showed that 55% of Asian firms missed their consensus earnings' estimates in the April-June quarter.

However, Asian shares are up this month on hopes the talks between the United States and China early in October would help de-escalate their trade dispute, bringing some relief to regional economies.

"The sustainability of the rosier mood remains a question that could keep investors cautious into year-end," said IG's Pan.

"Despite the rosier valuations, the uncertainty across the range of geopolitical issues continues to suggest that there may be greater volatility ahead."