April has proved a tough month for Asian financial markets. Foreign investors are increasingly fleeing from the stock markets of developing Asian economies. According to Bloomberg, major market participants have sold nearly $2.2 billion worth of equities in the region’s emerging markets this month, thus snapping the longest streak of purchases that began in 2017.
Overseas investors are currently moving away from high-tech stocks in South Korea, Hong Kong, and Taiwan and shifting their focus to equities in Saudi Arabia, Turkey, and the United Arab Emirates.
Taiwan has seen the largest capital outflow. The MSCI EM Asia index is about to turn negative. Investors are no longer impressed by last year’s rally, although the indicator is up 4.6% on a yearly basis.
Scaled-down expectations for US rate cuts have added fuel to the fire. According to Fed Chairman Jerome Powell, persistently elevated inflation will likely delay any Fed interest rate cuts until later. Other Fed officials are also in no hurry to ease monetary policy.
Investors are worried that the regulator’s potential delay could prompt emerging market central banks across Asia to follow suit and postpone rate cuts.
Thus, Asian markets are being weighed down by a number of factors: a stronger dollar, rising oil prices, and the Fed’s tight monetary policy. In addition, the region remains heavily dependent on energy imports. Analysts warn that rising Treasury yields coupled with high interest rates in the United States could force investors to further reduce their holdings in Asian equities and boost the appeal of the American market as a safer investment option.
