Overseas investors switch to Asian bonds from equities in May
By Patturaja Murugaboopathy and Gaurav Dogra
June 13 (Reuters) - While overseas investors sold Asian
equities in May, they bought the region's bonds, which were made
more attractive by falling yields and offered some safety amid
worries over the Sino-U.S. trade war, Brexit and a global
Foreigners bought a net $4.61 billion of regional bonds after
selling $3.64 billion in April, data from regional banks and
bond market associations in Malaysia, Thailand, Indonesia, South
Korea and India showed.
"If you look at how risk aversion in Asia has evolved over
the past four to six weeks, it has definitely increased. But it
is not excessively boiling over," said Terence Wu, a currency
strategist at OCBC Bank.
"What is happening is there is a case for people to move out
of equities, which are inherently risky and do a rotation
towards Asian bonds."
Analysts said that slowing economic growth in Asia would
prompt many central banks to cut their policy rates this year,
which in turn would boost the demand for its bond markets.
Also, expectations have increased that the U.S. Federal
Reserve would cut its interest rate amid slowing U.S. growth and
a sharp step-down in hiring in May.
Higher U.S. yields on the back of Fed's aggressive
tightening measures triggered sharp foreign outflows from Asian
bonds last year.
OCBC's Wu said it would be easier for Asian central banks
to cut their own interest rates so long as expectations for Fed
rate cuts prevailed, and that would benefit Asian bonds.
In May, South Korean bonds attracted $5.97 billion worth of
foreign money, the biggest in over 10 years, with investors
expecting its central bank to cut interest rates as the
export-oriented economy has caught a chill from the Sino-U.S.
Thai bonds also attracted $257 million of foreign money,
which was their first inflow in five months, following months of
uncertainty in the run-up and immediate aftermath of an election
in March, though it has resulted in a military-backed government
"Now that we are starting to get more clarity on the
political landscape, that political risk premia should begin to
compress and bond outflows of recent months could start to
reverse, helping to buoy Thai bonds," said Duncan Tan,
strategist at DBS Bank in a note.
Overseas investors also bought Indian bonds, as a landslide
victory for incumbent Prime Minister Narendra Modi provided
hopes for more economic reforms.
On the other hand, Malaysian and Indonesian bonds witnessed
sharp outflows in the last month.
(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in
Bengaluru; Editing by Simon Cameron-Moore)
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