Fed Risks Are Pushing Global Funds to Flee Emerging Asia Stocks Again




  • In Business
  • 2022-09-19 22:30:00Z
  • By Bloomberg

(Bloomberg) -- Another jumbo interest-rate hike by the Federal Reserve this week may accelerate global funds' exodus from emerging Asian stock markets that are already reeling from the impact of a stronger dollar.

Most Read from Bloomberg

  • Southwest Mexico Struck by 7.5 Magnitude Earthquake, Buildings Sway in Capital

  • Home-Flipper Opendoor Hit With Losses in Echo of Zillow Collapse

  • Grand Theft Auto VI Leak Is a Shock to Video Game Studio Rockstar

  • Biden Says He Warned Xi of Investment Chill If China Backs Putin

Foreign investors withdrew from emerging Asian equities excluding China for a fourth straight week, pulling $423 million in the period through Sept. 16, according to the latest exchange data compiled by Bloomberg. The longest run of outflows since July has pushed regional currencies to historical lows, further dampening the outlook for stocks.

"The recession risks and severe monetary tightening in developed economies are hampering Asian earnings expectations and emerging market flows like never before," Manishi Raychaudhuri, BNP Paribas SA's head of Asia Pacific equity research, wrote in a Sept. 17 note. Until there is some visibility about the Fed's policy path, "there seems to be no respite from outflows in Asian EM," he wrote.

Even though emerging Asia's foreign reserves and overall policy management have been better than during the taper tantrum of 2013, a supercharged dollar that's forcing monetary tightening across the region has spared few markets from a rout.

Outflows this year have amounted to some $64 billion, already more than what was seen for the whole of 2021. Tech heavy markets of Taiwan and South Korea have been hit particularly hard, with their benchmarks among the worst performing in the world this year.

Traders are now watching for additional tightening signals down the road when the Fed announces its decision -- an expected 75-basis-point increase -- on Wednesday. The negative correlation between emerging market stocks and the dollar has become more pronounced of late, according to Bloomberg Intelligence.

Still, some differentiation has emerged with the region. While North Asia is seeing weakness, outflows from India have reversed and markets such as Indonesia are attracting inflows.

India's Nifty 50 Index has gained more than 11% this quarter while gauges in Thailand and Indonesia are up about 4%. That's in contrast to a 1% gain in Korea and declines in Taiwan.

Some investors are finding solace in defensive stocks. A gauge for utilities stocks is the top-performing sector in Asia this quarter, down 0.5% versus a 5.5% decline in the MSCI Asia Pacific Index.

"We have been marginally adding to defensives, mainly via telcos as there is a genuine growth story there after years of investment," said Sat Duhra, a Singapore-based fund manager at Janus Henderson Investors, adding that he has been cutting back on consumer and tech exposures.

Most Read from Bloomberg Businessweek

  • The Global Race to Hike Rates Tilts Economies Toward Recession

  • Business Schools Are Beginning to Embrace Stakeholder Inclusion

  • The Biggest Copper Mine in the US Stalled in Dispute Over Sacred Ground

  • Private Equity Giants Are Having Cash Flow Problems

©2022 Bloomberg L.P.

COMMENTS

More Related News

German Court Gives Nod to EU
German Court Gives Nod to EU's €800 Billion Pandemic Fund

(Bloomberg) -- Germany's top court dismissed two cases challenging the country's approval of the European Union's €800 billion ($839 billion) pandemic...

Malaysia Palm Growers to Lose $4.6 Billion on Labor Shortage
Malaysia Palm Growers to Lose $4.6 Billion on Labor Shortage

(Bloomberg) -- A chronic shortage of plantation workers in Malaysia may cost palm oil producers about 20 billion ringgit ($4.6 billion) this year, according ...

SKF Explores Sale of Aerospace Business After Cevian Push
SKF Explores Sale of Aerospace Business After Cevian Push

(Bloomberg) -- SKF AB is exploring a sale of its aerospace operations, according to people familiar with the matter, as the Swedish industrial group trims...

Ramaphosa Digs In Over Scandal With South African Governing Party
Ramaphosa Digs In Over Scandal With South African Governing Party's Backing
  • US
  • 2022-12-06 08:55:42Z

(Bloomberg) -- South Africa's governing party said it will instruct its lawmakers to reject an independent panel's report that President Cyril Ramaphosa may ...

ECB
ECB's Lane Confident Inflation Near Peak as More Hikes to Come

(Bloomberg) -- European Central Bank Chief Economist Philip Lane said consumer-price growth is probably near its zenith, while acknowledging that borrowing...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business