Investing.com — Emerging markets in Asia, excluding China, saw sharp capital outflows in April, ANZ analysts said in a note, as appetite for risk-driven assets was hit by expectations of delayed US interest rate cuts and geopolitical tensions.
Asian stocks outside China saw total portfolio outflows of $5.9 billion in April, the first month of outflows since October, ANZ data showed. Taiwan accounted for the bulk of outflows, worth $4.8 billion. Much of this is likely driven by profit-taking in Taiwan's heavyweight technology stocks – TSMC (TW:) (NYSE:) and Foxconn (TW:) – the former of which saw a stellar collapse in the first quarter.
South Korea and Thailand continue to see capital inflows, with South Korea in particular benefiting from buying its key technology stocks due to the hype around artificial intelligence. India and Indonesia saw outflows of $1.1 billion each.
Most Asian markets saw a strong rally in the first quarter of 2024, amid optimism about potential interest rate cuts in the US. But this was cut short in April due to strong inflation readings, which had traders sharply pricing in most expectations for interest rate cuts this year.
Risk appetite was also hit by speculation about a possible war between Iran and Israel, although tensions escalated at the end of the month.
In addition to equity outflows, Asian currencies also saw continued weakness with the dollar rising to six-month highs in April. While the US currency has since retreated from those peaks, traders still appear largely biased towards the dollar before more signs emerge on the US economy.
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“But this respite could be temporary if upcoming US inflation data do not show continued progress towards the Fed's target. The influx of US data will be a major source of market volatility and portfolio flows for the region in the near term,” ANZ analysts said in a note.
Chinese stocks are largely moderate
Stock flows into China through Northbound Stock Connect continued for a third straight month in April, fueling a sharp rebound in local stocks from five-year lows hit in late January.
But equity flows fell sharply to $830 million in April from $3.06 billion in March, due to weak sentiment.
While Chinese markets rose to their highest levels in seven and eight months, the pace of their gains also slowed in recent sessions amid continuing doubts about the country's economic recovery.