Foreign investors turned net sellers of Asian equities in September, withdrawing $23.49 billion from regional stock markets as surging US Treasury yields , persistent inflation concerns and tighter monetary policies in developed economies dampened risk appetite, Reuters reported.
The outflows reversed net purchases of about $4.72 billion in August, according to LSEG data covering stock exchanges in South Korea, Taiwan, India, Indonesia, Thailand, Vietnam and the Philippines, Reuters reported.
South Korea accounted for more than 70% of the regional outflows as foreign investors reduced their exposure to one of Asia's largest technology-heavy markets following a strong rally in artificial intelligence-linked stocks.
The selloff came amid a sharp rise in US bond yields, which increased the attractiveness of developed-market assets relative to riskier investments in emerging Asia. A stronger US dollar also added to the pressure on regional equities.
According to Reuters, the benchmark US 10-year Treasury yield surged 53.5 basis points in September and reached 5.3645% on Wednesday, its highest level since April 2002, as rising oil prices fuelled concerns that inflation could remain elevated for longer.
Monetary policy expectations further weighed on investor sentiment, with the US Federal Reserve and the European Central Bank raising interest rates as policymakers sought to contain inflationary pressures exacerbated by higher energy costs linked to the Iran war.
India sees $3.75 billion in foreign outflows
Indian equities recorded foreign outflows of $3.75 billion in September, reversing two consecutive months of inflows and reflecting the broader retreat from Asian stocks.
South Korea and India have continued to face selling pressure in October. Foreign investors have withdrawn a further $4.81 billion from South Korean equities and $3.25 billion from Indian stocks so far this month.
Other Asian markets also witnessed substantial withdrawals in September. Foreign investors sold a net $1.28 billion in Taiwanese equities, $783 million in Thai stocks, $576 million in Indonesian shares and $135 million in Philippine equities, Reuters reported.
Vietnam was the exception, attracting modest foreign inflows of $6.68 million.
Hedge funds trim Asian equity exposure
Global hedge funds have also reduced their exposure to Asian equities as investors reassess risk amid higher developed-market yields and persistent inflation concerns.
Goldman Sachs research showed that hedge funds' overweight position in Asian stocks had narrowed to 13% relative to the MSCI All Country World Index by mid-September, down from a peak of 20% in June.
The reduction in positioning suggests that institutional investors have become more cautious about regional equities following the earlier rally, particularly in markets with significant exposure to technology and artificial intelligence-related stocks, Reuters reported.
Foreign outflows likely to persist
The outlook for foreign flows into Asian equities remains challenging as investors weigh relative returns in developed markets against the risks of emerging-market investments.
Reuters reported that market strategists expect foreign flows to remain under pressure in the near term, particularly if US Treasury yields stay elevated and investors continue to anticipate tighter monetary conditions over the coming year.
High borrowing costs, a stronger dollar and persistent inflation risks could continue to divert capital towards higher-yielding assets in developed economies, limiting the appeal of Asian equities.
For regional stock markets, a sustained recovery in foreign inflows will likely depend on moderating bond yields, greater clarity on the global interest-rate outlook, and improved investor appetite for riskier assets.