Foreign investors were net buyers of Asian emerging market bonds excluding China in July on hopes that the United States might slow the pace of interest rate hikes as its economy felt the heat, while that concerns about higher levels of inflation were easing.
Foreigners transferred a combined net total of $2.39 billion in Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking their first month as net buyers since February, associations data shows. regulatory and bond market.
(Chart: Monthly Foreign Investment Flows: Asian Bonds – https://fingfx.thomsonreuters.com/gfx/mkt/klpykwmbkpg/Monthlyper cent20foreignper cent20investmentper cent20flowsper cent20Asianper cent20bonds.jpg )
“Some investors are adding exposure to Asian bonds,” said Duncan Tan, strategist at DBS Bank.
“Pressures have eased recently due to some market expectations of a dovish Fed pivot and a concomitant pullback in the broader US dollar,” he added, referring to speculation that the US Federal Reserve could ease its pace of monetary policy tightening.
Data showed last month that the US economy unexpectedly contracted in the second quarter as business spending declined and consumer spending growth fell to its lowest level in two years.
Investors also lowered their expectations for the size of a Federal Reserve rate hike next month, as US inflation slowed in July.
Foreigners bought South Korean bonds worth $3.56 billion last month, their biggest net purchase since December, while Indonesian debt attracted just $79 million, after four months of trading. consecutive outings.
South Korea’s economic growth unexpectedly accelerated in the second quarter, boosted by strong consumption.
However, foreigners sold $794 million worth of bonds in Malaysia, while India and Thailand recorded outflows of $258 million and $201 million, respectively.
As market attention shifts from inflationary concerns to growth concerns, Asian bonds could attract capital inflows, analysts said.
“We expect large foreign bond outflows in 1H to turn into small inflows in 2H,” DBS’s Tan said.
(Chart: Foreign investors‘ holdings of Asian bonds – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkbaoepx/Foreignper cent20investorsper cent20holdingsper cent20inper cent20Asianper cent20bonds.jpg )
(Reporting by Gaurav Dogra in Bengaluru; Editing by Mark Potter)