Foreign outflows rock Asian equities in September amid rate concerns

By Gaurav Dogra

(Reuters) – Asian equities suffered massive foreign outflows in September, hit by worries about interest rates remaining higher for a prolonged period in the United States and a surge in Treasury yields.

Data from stock exchanges in Taiwan, India, South Korea, Indonesia, the Philippines, Thailand and Vietnam showed foreigners disposed of a net $11.26 billion worth of regional equities in September, the biggest outflow since June 2022.

The U.S. Federal Reserve kept interest rates unchanged last month. However, it projected an increase by year-end, saying the monetary policy will likely be significantly tighter through 2024 to combat inflationary pressures.

The U.S. benchmark 10-year yield reached a 16-year high of 4.688% last month, further hitting Asian stocks.

The MSCI Asia-Pacific index fell 2.9% in September and hit a six-month low of 156.37.

“Correlations with U.S. rates have turned more negative across all Asian markets and sectors, suggesting rising rates have weighed adversely on equity returns,” Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, said in a note.

Taiwanese stocks experienced about $6.27 billion in foreign outflows last month, marking the largest outflow since June 2022.

Foreigners also withdrew a net $1.78 billion from Indian stocks, marking their first monthly net selling in seven months.

According to the data, South Korean, Thai, Philippine, Indonesian and Vietnamese equities also posted foreign outflows of $1.69 billion, $628 million, $465 million, $263 million and $165 million.

This week, Asian equities faced renewed pressure as military clashes between Israel and the Palestinian Islamist group Hamas raised concerns among investors, dampening risk appetites.

“The conflict has pushed up global oil prices and is likely to weigh on investor sentiment in the near term,” said Khoon Goh, head of Asia Research at ANZ Bank.

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.”