Foreign investors are withdrawing from emerging markets in Asia, figures show

By Abhishek Vishnoi

Global funds are retreating from Asia’s emerging markets as a five-month buying spree in stocks ends with lowered expectations for US interest rate cuts.

Foreign investors sold nearly $2.2 billion worth of equities in the region’s emerging markets on a net basis in April, according to data compiled by Bloomberg, excluding China. This ends the longest series of purchases dating back to 2017.

Taiwan has led the outflows this month, while South Korea has posted net inflows over the period. The MSCI EM Asia Index is a fraction away from giving up its gains since the start of the year. The indicator had risen as much as 4.6% this year until concerns grew last week that the Federal Reserve would delay interest rate cuts.

After a series of unexpectedly high inflation figures, Fed Chairman Jerome Powell indicated on Tuesday that policymakers will wait longer than originally expected before cutting rates. Investors are concerned that the Fed’s delay will force emerging market central banks to follow suit and delay interest rate cuts.

Continued high interest rates due to a solid US economy, as well as rising oil prices, will exacerbate cost pressures from a stronger dollar and Asia’s dependence on imported energy. Higher US interest rates also strengthen the appeal of government bonds as a safer option for equities in the region.

Active emerging market funds saw outflows of $2.7 billion in March amid rising expectations that the Fed will delay looser policy, said Jason Ng, a strategist at Morgan Stanley. In particular, they have cut back on tech-heavy Taiwan, while increasing positions in Saudi Arabia, Turkey and the United Arab Emirates, he wrote in a report.

First print: April 17, 2024 | 4:07 PM IST