EM Asia sees capital outflows in April amid rate jitters, M.East tensions- ANZ

Investing.com-- Emerging markets in Asia excluding China saw steep capital outflows in April, ANZ analysts said in a note, as appetite for risk-driven assets was battered by expectations of delayed U.S. rate cuts and geopolitical tensions. 

Asian equities outside China saw total portfolio outflows of $5.9 billion in April- their first month of outflows since October, ANZ data showed. Taiwan accounted for a bulk of the outflows, at $4.8 billion. A large portion of this was likely driven by profit-taking in Taiwan’s heavyweight tech stocks- TSMC (TW:2330) (NYSE:TSM) and Foxconn (TW:2317)- the former of which saw a stellar melt-up in the first quarter. 

South Korea and Thailand still saw capital inflows, with South Korea in particular having benefited from buying into its major technology stocks on hype over artificial intelligence. India and Indonesia saw outflows of $1.1 billion each. 

Most Asian markets saw a strong run-up in the first quarter of 2024, amid optimism over potential interest rate cuts in the U.S.. But this was cut short in April by strong inflation readings, which saw traders sharply price out most expectations for rate cuts this year. 

Risk appetite was also battered by speculation over a potential war between Iran and Israel, although tensions de-escalated towards the end of the month. 

In addition to the equity outflows, Asian currencies also saw sustained weakness as the dollar surged to six-month highs in April. While the greenback has since retreated from those peaks, traders still appeared to be largely dollar-biased ahead of more cues on the U.S. economy.  

“But this respite could prove to be temporary if the upcoming US inflation data do not show continued progress towards the Fed’s target. The U.S. dataflow will be a key source of market and portfolio flow volatility for the region in the near term,” ANZ analysts said in a note. 

China equity flows moderate drastically 

Equity flows into China through the Northbound Stock Connect continued for a third straight month in April, underpinning a sharp recovery in local stocks from five-year lows hit in late-January.

But equity inflows moderated sharply- to $830 million in April from $3.06 billion in March, as weak sentiment weighed. 

While Chinese markets surged to seven and eight-month highs, their pace of gains had also slowed in recent sessions amid sustained doubts over an economic recovery in the country.