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When It Comes to Stocks Flows, Not All of Asia Is Equal

When It Comes to Stocks Flows, Not All of Asia Is Equal

(Bloomberg) -- Asia equity markets may have rallied across the board this year, but that doesn’t mean foreign investors have been buying indiscriminately.

While the benchmark MSCI Asia Pacific Index has soared 11 percent in 2019, overseas investors were in fact net sellers of the region, exiting $7.39 billion in equities through March 27, according to a report from Jefferies Financial Group Inc. strategists Kenneth Chan and Tommy Tang.

Japan appears to account for much of the sell-off, with foreign investors dumping $22.1 billion of the equities in the quarter, the data show. By contrast, northbound investors funneled $17.1 billion into China stocks in the period.

When It Comes to Stocks Flows, Not All of Asia Is Equal

Investors appear to have made the right call as Japanese stocks have underperformed. The Topix index rose a mediocre 6.5 percent in the first quarter, coming in 47th among 94 major equity gauges in the world, according to data compiled by Bloomberg. The benchmark fared even worse than Australia, which is struggling through problems of its own, including a prolonged housing slump and cloud of uncertainty over its biggest financial companies. At the other end, the Shanghai Composite Index has led gains, recovering from last year’s rout.

The results are in line with a shift among investors back to the emerging markets that got battered last year by a strengthening U.S. dollar. With the Federal Reserve adopting a more dovish stance and optimism that the U.S. and China are closing in on a trade deal, sluggish developed markets including Japan and Germany are looking less and less attractive to global investors.

“Emerging-market stocks remain our preferred equity investment, due to the developing world’s more resilient economic growth, low inflation and the prospect of a weaker U.S. dollar,” Luca Paolini, chief strategist with Pictet Asset Management, wrote in an April asset-allocation report to clients. “We are less convinced about euro-zone and Japanese stocks mainly as economic growth in these markets remains sluggish.”

Paolini is neutral on both regions. Investors were less equivocal, fleeing developed Europe to the tune of $40.4 billion in the first quarter, according to Jefferies data. The report doesn’t distinguish between foreign and mutual-fund or exchange-traded fund investors for the region.

Other emerging markets that picked up foreign flows include India, South Korea and Taiwan, which collectively saw some $13.8 billion in fresh cash in the quarter, the Jefferies figures show.

Stock-Market Summary

  • MSCI Asia Pacific Index up 0.8%
  • Japan’s Topix index up 0.6%; Nikkei 225 up 1%
  • Hong Kong’s Hang Seng Index up 1.2%; Hang Seng China Enterprises up 1.4%; Shanghai Composite up 1.2%; CSI 300 up 1.3%
  • Taiwan’s Taiex index up 0.1%
  • South Korea’s Kospi index up 1.2%; Kospi 200 up 1.4%
  • Australia’s S&P/ASX 200 up 0.7%; New Zealand’s S&P/NZX 50 down 0.2%
  • India’s S&P BSE Sensex Index down 0.2%; NSE Nifty 50 down 0.4%
  • Singapore’s Straits Times Index up 1%; Malaysia’s KLCI up 0.6%; Philippine Stock Exchange Index up 0.2%; Thailand’s SET down 0.1%; Vietnam’s VN Index down 0.1%
  • S&P 500 e-mini futures up 0.5% after index closed little changed in last session

--With assistance from Cormac Mullen.

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Vannucci, Divya Balji

©2019 Bloomberg L.P.