Asia: Foreign investor demand stayed strong in June - ANZ

Foreign investor demand for Asian assets stayed strong in June despite the US Federal Reserve rate hike, weak commodity prices and rise in global bond yields, according to Khoon Goh, Head of Asia Research at ANZ.

Key Quotes

“Portfolio inflows into Asia ex China were recorded for the sixth consecutive month. The USD9.2bn of foreign buying in June took the H1 2017 total to USD63.6bn, the highest since H2 2012. Debt inflows at USD6.1bn for the month continued to outpace equities which had inflows of USD3.1bn.”

“Most of the foreign buying was concentrated in just two markets: India and South Korea. India was once again the largest recipient of foreign investor flows, accounting for half of the total inflows to the region, most of which went to the Indian debt market. South Korea accounted for a further third of the region’s total inflows in June.”

“Foreign demand for Chinese bonds also rose to their highest since September 2016. Investors seem to have shrugged off the sovereign rating downgrade by Moody’s. The launch of the Bond Connect scheme on 3 July could see further inflows, as foreign ownership of Chinese bonds remains the lowest in the region. MSCI’s inclusion of China A shares in the Emerging Markets Index should support demand for Chinese equities. China equity flows data is only available up to March, but more timely ETF data suggests inflows remained solid throughout Q2.”

“Investor appetite for Asian assets has not been dented by the ongoing policy normalisation by the US Federal Reserve. However, conditions for further strong inflows into Asia are looking less conducive, with the Fed set to begin their balance sheet reduction as soon as September and there are signs of a policy tilt at the other major developed market central banks. Should we see a synchronised removal of accommodation by the G7 central banks, this will reduce global liquidity as well as push global bond yields higher. This will eventually lead to some unwinding of the strong H1 inflows into Asia, which will impact negatively on the region’s asset prices.”