Asian equities see massive outflows on inflation worries

By Gaurav Dogra

(Reuters) - Asian equities have seen heavy foreign outflows since the start of this month on concerns about China's property sector and on expectations that major central banks would raise interest rates soon amid concerns about rising inflationary pressures.

Foreigners have sold a combined net total of $3.35 billion in Asian equities this month as of Oct. 5, data from stock exchanges in India, South Koreaw, Thailand, Indonesia, Taiwan, Philippines and Vietnam showed.

Last month, cross-border investors purchased Asian equities worth a net $2.9 billion, the biggest inflow in 2020, the data showed.

"For Asia, the combination of increasing uncertainty in China's growth and a mega Chinese developer entering into distress has brought a lot of uncertainty in the market ” said Chang Wei Liang, Credit & FX Strategist at DBS Bank.

With liabilities of $305 billion, China Evergrande Group has sparked concerns that its cash crunch could spread through China's financial system and reverberate globally.

(GRAPHIC: Foreign investments in Asian equities - https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrrnnbvm/Foreign%20investments%20in%20Asian%20equities.jpg)

(GRAPHIC: Foreign outflows from Asian equities in October - https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkjrjrpx/Foreign%20outflows%20from%20Asian%20equities%20in%20October.jpg)

Taiwanese and South Korean equity markets faced an outflow of $2.13 billion and $762 million, respectively, this month.

Oil prices have hit their highest since November 2014 this month, which have stirred worries that spiralling energy costs could force central banks to raise rates more quickly to combat quickening inflation.

Investors were also anxiously looking to a key U.S. payrolls report at the end of this week that could boost the case for the Federal Reserve to start tapering stimulus as soon as next month.

Asian equities witnessed massive outflows, when the Federal Reserve tapered its asset purchases in 2013, which prompted investors to move away from riskier assets.

"However, the Asian economies’ current accounts are far healthier and forex reserves are far larger today than in 2013," said Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas (OTC:BNPQY).

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"Improved market access (through Stock Connect for instance) and new IPOs (by way of “homecoming” in HK/China and listing of he digital space in India and Indonesia) should sustain foreign investors’ interest in key Asian markets," he said.

Last month, Indian equities received a net $1.8 billion worth of foreign money while Indonesian equities obtained $306 million.