Asian equities experienced significant foreign capital outflows throughout September, as concerns over sustained higher interest rates in the United States and surging Treasury yields rattled regional markets.
Data from stock exchanges in Taiwan, India, South Korea, Indonesia, the Philippines, Thailand, and Vietnam revealed that foreign investors offloaded a net total of $11.26 billion worth of regional equities in September, marking the largest outflow since June 2022.
The U.S. Federal Reserve, in its recent policy decision, opted to keep interest rates unchanged. Nevertheless, it indicated a forthcoming rate hike by year-end, emphasizing the likelihood of a considerably tighter monetary policy through 2024 to combat inflationary pressures.
In the backdrop of this announcement, the U.S. benchmark 10-year yield reached a 16-year high of 4.688% last month, further impacting Asian stock markets.
The MSCI Asia-Pacific index plummeted by 2.9% in September, reaching a six-month low of 156.37.
Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, observed, “Correlations with U.S. rates have turned more negative across all Asian markets and sectors, suggesting rising rates have weighed adversely on equity returns.”
Taiwanese equities took a severe hit, with approximately $6.27 billion in foreign outflows recorded last month, marking the largest outflow since June 2022.
Foreign investors also withdrew a net total of $1.78 billion from Indian stocks, marking the first monthly net selling in seven months.
The data also revealed foreign outflows of $1.69 billion, $628 million, $465 million, $263 million, and $165 million from South Korean, Thai, Philippine, Indonesian, and Vietnamese equities, respectively.
This week, Asian equities faced renewed pressure as military conflicts between Israel and the Palestinian Islamist group Hamas raised concerns among investors, dampening risk appetites.
Khoon Goh, Head of Asia Research at ANZ Bank, commented on the situation, stating, “The conflict has pushed up global oil prices and is likely to weigh on investor sentiment in the near term.” He added that recent headline consumer price index readings in Asia have surprised to the upside due to higher energy and food prices, and a further spike in oil prices will only complicate matters for the region’s central banks. “Further portfolio outflows from the region look likely in the near term as a result.”
