FLOWS: TD Securities: Obstacle-Strewn Path

TD Securities note that “after starting strong, Asian equities underperformed other Asia asset classes last year, largely due to China. 2022 performance has started off weak. Asia recorded significant foreign equity outflows ($37.4bn) over 2021 though there was a rebound towards the end of the year. 2022 has kicked off with inflows ($2.4bn) led by Korea and Taiwan, while equity flow momentum is turning more positive. Despite Asian equity declines late last year exposure at hedge funds has hardly weakened. Fed tapering, higher U.S. rates pose risks to inflows in the months ahead.”

• “2021 local currency bond inflows to Asia were positive, but there was country divergence, with India and Indonesia actually registering outflows. Bond inflows (ex-Korea and China) totalled just over $6bn vs. $13.5 outflows in 2020. Total bond inflows to China amounted to $105.6bn in Jan to Nov 2021, less than the $135.5bn recorded over the same period in 2020. Inflows picked up in Nov 21 and may benefit from an easier Chinese policy stance. However, higher U.S. yields will likely dent local currency bond inflows, with our analysis showing that hedge funds sharply reduced exposure to China local currency bonds into year-end.”