Foreign selling in Asian equities has accelerated so far in May as investors turn cautious over the impact of war-driven inflation and higher borrowing costs on corporate margins across the region. Foreign investors have so far sold a net $24.75 billion of regional equities this month, with a record $17.27 billion of shares divested in the last week, LSEG data covering exchanges in South Korea, Taiwan, Thailand, India, Indonesia, Vietnam and the Philippines showed. The Reuters Iran Briefing newsletter keeps you informed with the latest developments and analysis of the Iran war.
The 30-year U.S. Treasury yield climbed to its highest level since 2007 this week, adding pressure on Asian equities as higher long-term borrowing costs weighed on valuations, particularly in growth-heavy markets. "Higher yields could increase pressure on equities as tighter financial conditions could weigh on valuations, particularly in growth sectors," said Paolo Broccardo, CEO at BankPro, in a note. South Korean stocks faced a record $13.14 billion worth of foreign outflows in the last week. Last week, investors also divested $2.88 billion of local shares in Taiwan, $1.35 billion in India and $184 million in Indonesia.
Mainland China H-share, Hong Kong, Korea and Taiwan equities are traditionally most sensitive to an increase in yields," said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC. "30% of Asian funds’ exposure is to a handful of stocks in Korea and Taiwan. Any de-risking may cause more volatility in these markets," HSBC's Linde said. Indonesian and Thai stocks have, however, still attracted $511 million and $215 million of foreign inflows, so far this month.
