Asian Equities To Receive End of Foreign Investments

Foreigners became net buyers of Asian stocks in April, buoyed by rising expectations that the United States Federal Reserve will pause its aggressive tightening cycle, as well as other factors such as a weaker dollar and strong first-quarter corporate earnings.

Foreigners purchased a net $872 million of equities in April, according to data from stock exchanges in India, Indonesia, the Philippines, South Korea, Taiwan, Thailand, and Vietnam – the highest monthly buying since January.

Bets on the Fed tightening further have recently faded as the failure of three US regional banks fueled fears of a recession, while higher interest rates have increased borrowing costs for businesses and consumers.

The Fed raised interest rates by a quarter percentage point on Wednesday, as expected, and signalled that further increases may be postponed to allow officials to assess the fallout from recent bank failures and inflation trends.

According to Chetan Seth, an equity strategist at Nomura, any weakness in Asian stocks due to concerns about the U.S. recession will be an opportunity for investors to increase exposure to the region due to supportive factors such as China's recovery, an expected bottoming out of the tech sector downturn, and a strong 2024 earnings recovery.

According to Refinitiv data, Asian companies outperformed net income forecasts by 3% in the March quarter.

Due to a rally in domestic stocks, Indian equities received a net $1.42 billion in foreign inflows, the highest since November 2022. Last month, Indian stocks outperformed the rest of the region, with the Nifty 50 rising 4.1%, its biggest monthly gain since November 2022. Foreigners also spent $830 million, $616 million, and $34 million on Indonesian, South Korean, and Philippine stocks, respectively. Meanwhile, Taiwan saw $1.73 billion in net selling, while Thai equities saw a $231 million outflow.

According to Yeap Jun Rong, an IG strategist, the US dollar remaining near a one-year low is also supportive of EM Asia equities.

The dollar fell 0.94 percent against a basket of major world currencies in April, the second month in a row, as expectations for further Fed rate hikes eased.