Foreigners sold Asian equities in September on higher U.S. yields, slowing growth

By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) - Foreign investors were net sellers in most Asian equity markets in September, as a stronger dollar, higher U.S. interest rates and earnings downgrades undermined the appetite for regional stocks.

Data from regional stock exchanges showed foreigners were net sellers of a total of $1.8 billion worth of Indian, Indonesian, Thai, Philippine and Vietnamese equities - the most in three months.

Foreign investments into Asian equities https://reut.rs/2OofGOY

The U.S bond yields touched multi-year highs on Tuesday bolstered by strong U.S. economic data and expectations of further interest rate hikes by the Federal Reserve. The rise in yields has prompted investors to leave the risky Asian equities to invest in the high yielding U.S. bonds.

"As long as the U.S Fed keeps hiking interest rates the impact of tighter dollar liquidity on Asian equities is unlikely to ease," HSBC analysts said in a report this month.

"We believe relief should come next year when it becomes clear that the US interest rate cycle is close to a peak."

In September, Indian equities had their worst monthly performance since February 2016, based on a benchmark index, and saw foreign outflows of about $1.2 billion as worries over bad debt in non-banking financial companies triggered a broad sell-off.

The Philippine equity markets witnessed foreign outflows on each day of September, pressured by rising consumer prices and the weakening peso. Exchange data showed that foreigners sold Philippine equities for a 28th consecutive session on Monday, a record streak.

Foreign investors record selling streak in Philippine equities

https://reut.rs/2OgDW6n

Thailand and South Korean equities also had September outflows, of $213 million and $147 million respectively.

On the other hand, Taiwan markets attracted $2.1 billion of foreign money as trade worries eased somewhat after Washington and Beijing imposed more tit-for-tat tariffs on each other's goods, though their initial levels were not as high as expected.

Analysts have been downgrading forward earnings of some Asian firms on concerns over weakening currencies, higher interest rates and slowing growth.

Asian firms' analyst forecasts change in last 30 days https://reut.rs/2yt9ElU

In dollar terms, forward 12-month dollar earnings for Indian firms have been cut by more than 3 percent over the past month, while Indonesian and South Korean firms' earnings were cut by over 2 percent each, according to Refinitiv data.

"In September, the one-month Asia Pac Earnings Revision Ratio fell from 0.74 to 0.63, reaching the lowest level in two years," said Bank of America Merrill Lynch in a report.

Earnings revision ratio measures the number of stocks for which earnings have been upgraded to the number downgraded over a period of time.

"At these levels in the past, the average return of the MSCI APxJ Index in the subsequent twelve months has been muted," the report said.

(Reporting by Patturaja Murugaboopathy and Gaurav Dogra; Editing by Richard Borsuk)