Foreign investors retreating from emerging markets in Asia, shows data

By Abhishek Vishnoi

Global funds are retreating from emerging markets in Asia, with a five-month buying spree of stocks ending on scaled-down expectations for US rate cuts.
 

Overseas investors have sold nearly $2.2 billion worth of equities in the region’s emerging markets in April, on a net basis, according to data compiled by Bloomberg that excludes China. That will snap the longest streak of purchases going back to 2017.

Taiwan has led the outflows this month, while South Korea has seen a net inflow for the period. The MSCI EM Asia Index is just a whisker away from giving up its year-to-date advance. The gauge had been up as much as 4.6% on the year until concerns mounted last week that the Federal Reserve will delay rate cuts.

Following a string of unexpectedly high inflation readings, Fed Chair Jerome Powell indicated Tuesday that policymakers will wait longer than originally expected before lowering interest rates. Investors are concerned that the Fed’s delay will force emerging market central banks to follow suit in postponing rate cuts.

Persistently high borrowing rates due to a solid US economy, as well as rising oil prices, will exacerbate cost pressures of a stronger dollar and Asia’s reliance on imported energy. Higher US rates also bolster the investment appeal of Treasuries as a safer option to the region’s stocks.

Active emerging market funds saw an outflow of $2.7 billion in March amid rising bets that the Fed will delay easier policy, according to Jason Ng, a strategist at Morgan Stanley. Notably they reduced tech-heavy Taiwan, while adding to positions in Saudi Arabia, Turkey and United Arab Emirates, he wrote in a report.