EM Asia: Spike in foreign portfolio inflows - ANZ

Khoon Goh, Head of Asia Research at ANZ, notes that the foreign portfolio inflows into EM Asia (ex-China) surged to USD18.4bn in July while there was an additional USD1.4bn of inflows into China bonds.

Key Quotes

“Strong risk appetites and hunting by yield hungry global investors have seen a spike in foreign portfolio inflows into EM Asia. Expectations that the US Federal Reserve will delay policy normalisation, coupled with prospects for further monetary policy stimulus from other major central banks, and signs of stabilisation in China have all led to increased risk appetites. Equity inflows totalled USD13.6bn in July, with Taiwan alone seeing USD5.4bn of inflows.

With bond yields in major developed markets heading to new lows and some further into negative territory, the search for yield has seen strong inflows into EM Asian bond markets. Total debt inflows (ex-China) totalled USD4.8bn in July, with Malaysia receiving USD1.4bn. India and Indonesia, two high yielding countries, also attracted strong inflows, with the latter benefiting from positive investor sentiment following the passage of the Tax Amnesty Bill.

Investors appear to want duration exposure but not FX exposure in Korea and Malaysia, given outflows in their short-dated instruments. While July data is not yet available for Indonesia, there have been inflows into SBI in June, reversing the May outflows, suggesting investors are more comfortable about IDR’s near-term stability.

There was a further USD1.4bn of inflows into Chinese bonds, despite concerns around RMB depreciation. Improved foreign investor accessibility to the Chinese onshore bond market could be starting to show through, with foreign ownership of CGBs surpassing 3% for the first time in June, and stabilising at 3.2% in July.

The strong inflows have carried into August with USD4.3bn of equity inflows so far in just over a week. The hunt carries on.”