By Joanne Chiu
Foreign fund flows into Asia’s emerging markets surged in November, marking a turn in investor sentiment toward some of the most beaten-down assets in the region this year.
Global investors were big buyers of stocks and bonds in China, Taiwan and other developing Asian markets last month, purchasing a net $23.9 billion in regional equities and debt, according to preliminary figures from the Washington-based Institute of International Finance.
It was the largest net monthly inflow since January this year and helped power a rebound in Asia’s emerging markets in November following a selloff and net outflows in October.
Chinese stocks were among the main beneficiaries, capturing $8.5 billion in net foreign fund inflows in November. Markets in India, the Philippines and Indonesia also drew more investments.
The MSCI Emerging Markets Asia Index, which includes nine markets, ended three straight monthly losses to rise 5.1% in November. That was its biggest monthly gain since the index’s 8% jump in January.
What It Means
Many emerging markets are still in the red for the year following a tumultuous period of trade disputes and currency weakness. But foreign investors are redeveloping a taste for riskier assets, thanks to cheaper stock valuations, a softening U.S. dollar and the temporary cease-fire in the U.S.-China trade dispute.
The MSCI Emerging Markets Asia Index, which is down nearly 14% in the year to date, is up 0.6% so far in December, while the Chinese yuan and Indonesian rupiah have also pared some of their losses this year. Falling oil prices have also helped some of the region’s markets.
“It’s a good time to invest more,” said Choonshik Yi, a fund manager at UBP Asset Management Asia. He said there has been an upturn in market sentiment since the Sino-U.S. trade truce at the Group of 20 meeting in Buenos Aires, and his firm is adding to its equity positions in Asia as valuations look attractive.
The MSCI Emerging Markets Asia Index is trading at a forward price/earnings ratio of 10.9 times versus its 10-year average of 11.6 times. That compares with the S&P 500’s 15.9 times, according to Refinitiv.
Kevin Anderson, head of Asia-Pacific investments for State Street Global Advisors, said his firm is overweight Chinese consumer-discretionary stocks, as “the story of rising wealth in China remains intact.” However, he said trade tensions could escalate again before finally stabilizing, so there remains some risk for further weakness in China’s markets.
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