Can EM Asia Offshore Equity Outflows Recover?

Net equity outflows on the part of offshore investors continue to be a feature for EM Asia markets. However, there is now a reasonable wedge between these trends and the rebound in equity flow momentum for China markets seen over the past month.

• Net outflows for the past week were strongest in India, although this is only data up to last Thursday (as the data is released with a lag). Next was South Korea and Taiwan. All other markets recorded net outflows, albeit in much smaller magnitudes in absolute terms.
• For the past month, net outflows have also been recorded in every market, except for Indonesia.

Table 1: Net Equity Flows For EM Asia Economies

Source: MNI - Market News/Bloomberg

• Still, last week saw a reduced pace of net outflows compared with the previous week. In the week ending June 17^th, we saw larger net outflows for all markets except Indonesia.
• The trend improvement in net inflow momentum for China equities suggests we can see an improved picture for the rest of EM Asia. The chart below plots the rolling monthly sum of net inflows for China via the stock connect schemes, against the aggregate sum of net inflows for the rest of EM Asia (namely - South Korea, India, Taiwan, Thailand Indonesia, Philippines and Malaysia).
• The two series share a reasonable correlation over the medium term. China inflows have been buoyed by a sense of easier policy settings, particularly compared to the major developed economies, coming out of Covid lockdowns, which should improve data flow and potentially less regulatory burden for tech sector.
• A better macro backdrop for China should aid inflow momentum into regional equities, all else equal. Of course, other factors e.g. a moderation in Fed tightening expectations and lower commodity prices, can also help.
• There is likely to be limits on how far equity flow sentiment can stabilise, with the threat of a US/global recession continuing to cast a shadow. However, a short term improvement in the flow picture can have positive flow-on effects to local equities and FX performance.

Fig 1: Net Equity Flows - China & The Rest Of EM Asia (Rolling Monthly Sums)

Source: MNI - Market News/Bloomberg