Business Standard – January 4, 2023

Foreign investors withdrew more money from emerging Asian equities in 2022 than they had done in any year since the global financial crisis in 2008, as rising U.S. interest rates pulled funds towards dollar assets.

Data from stock exchanges in Taiwan, India, the Philippines, Vietnam, Thailand, Indonesia and South Korea showed foreigners sold equities worth $57 billion last year, the biggest outflow since 2008.

Monthly foreign investment flows Asian equities

After four straight 75-basis point hikes earlier in 2022, the U.S. Federal Reserve raised its overnight borrowing rate by another 50 basis points in December.

Due to the hikes, the yield on safer 10-year U.S. Treasuries climbed about 230 basis points to 3.83% last year, which hit the foreign demand for riskier regional equities.

Taiwanese equities faced outflows worth $41.6 billion last year, leading the regional sales, while India and South Korea witnessed an outgo of $15.4 billion and $9.6 billion, respectively.

Graphic: Yearly foreign investment flows: Asian equities

Hit by falling foreign demand and a worsening economic outlook, the MSCI’s Asia Pacific index plunged 19.4% last year – the biggest fall since dropping 43.3% in 2008.

Some analysts expect more outflows, at least in the first half of the year, as U.S. interest rates are expected to rise further this year.

“The first half of the new trading year could continue to bring a cautious tone in the region, as market participants brace for further economic impact from tighter global central banks’ policies, along with risks of China’s reopening triggering cross-border virus spreads,” said Yeap Jun Rong, a market strategist at IG.

In December, emerging Asian equities, excluding Japan and China, witnessed net sales worth $3 billion, with Taiwanese, Indonesian and South Korean equities facing outflow of $2.55 billion, $1.34 billion and $1.31 billion, respectively.

On the flip side, India, Vietnam and Thailand received net inflows of $1.36 billion, $559 million and $372 million, respectively, in December.