International investors have intensified their withdrawal from Asian stock markets during May as concerns mount over war-related inflation and rising borrowing costs affecting company profits throughout the region.
Overseas investors have pulled out a net $24.75 billion from regional stock markets this month, with a historic $17.27 billion in shares sold during the past week alone, according to LSEG data from exchanges in South Korea, Taiwan, Thailand, India, Indonesia, Vietnam and the Philippines.
The 30-year U.S. Treasury yield reached its peak level since 2007 this week, creating additional strain on Asian stock markets as elevated long-term borrowing costs hurt company valuations, especially in growth-focused markets.
“Higher yields could increase pressure on equities as tighter financial conditions could weigh on valuations, particularly in growth sectors,” said Paolo Broccardo, CEO at BankPro, in a note.
South Korean equities experienced a historic $13.14 billion in foreign money outflows during the past week. During the same period, investors also pulled $2.88 billion from Taiwanese shares, $1.35 billion from Indian markets, and $184 million from Indonesian stocks.
“Mainland China H-share, Hong Kong, Korea and Taiwan equities are traditionally most sensitive to an increase in yields,” said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC.
“30% of Asian funds’ exposure is to a handful of stocks in Korea and Taiwan. Any de-risking may cause more volatility in these markets,” HSBC’s Linde said.
Despite the broader trend, Indonesian and Thai markets have still drawn $511 million and $215 million in foreign investment respectively during May.
