Foreign Outflows Rock Asian Equities in September Amid Rate Concerns
Massive Outflows Signal Worries About Interest Rates and Treasury Yields
Asian equities experienced a significant blow in September as foreign outflows reached massive levels. Investors grew concerned about the potential for higher interest rates in the United States and the surge in Treasury yields. Data from stock exchanges across the region revealed that foreigners disposed of a net $11.26 billion worth of regional equities, marking the largest outflow since June 2022.
Impact of U.S. Monetary Policy and Rising Yield Rates
The U.S. Federal Reserve decided to keep interest rates unchanged last month but projected an increase by year-end. It aims to combat inflationary pressures, resulting in a tighter monetary policy through 2024. The U.S. benchmark 10-year yield soared to a 16-year high of 4.688% in September, further impacting Asian stocks.
Correlations with U.S. Rates and Asian Equity Returns
Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, highlighted the negative correlations between U.S. rates and Asian markets and sectors. These correlations suggest that rising rates have adversely affected equity returns. The MSCI Asia-Pacific index fell 2.9% in September, hitting a six-month low of 156.37.
Individual Markets Affected by Outflows
Taiwanese stocks experienced the largest outflow, with about $6.27 billion exiting the market last month. This marked their largest outflow since June 2022. Indian stocks also saw a net withdrawal of $1.78 billion, the first monthly net selling in seven months. South Korea, Thailand, the Philippines, Indonesia, and Vietnam also experienced foreign outflows of $1.69 billion, $628 million, $465 million, $263 million, and $165 million, respectively.
Renewed Pressure Amidst Conflicts and Rising Oil Prices
This week, Asian equities faced renewed pressure due to military clashes between Israel and the Palestinian Islamist group Hamas. These conflicts raised concerns among investors and dampened risk appetites. Global oil prices also increased, adding to worries and potentially impacting investor sentiment in the near term. Higher energy and food prices have already surprised the region with upside consumer price index readings, and a further spike in oil prices may complicate matters for central banks.
Overall, the significant outflows experienced by Asian equities in September have highlighted the impact of interest rates and Treasury yields on market performance. The correlations with U.S. rates have proven to be negative, resulting in adverse equity returns. As conflicts and rising oil prices continue to add pressure, further portfolio outflows from the region may be expected. It remains crucial for investors and central banks to closely monitor these developments and adapt their strategies accordingly.
