Emerging Asia Bonds Attract Inflows

Emerging Asia bonds – excluding China – continued to see foreign inflows for a 21st straight month in February, but analysts are turning pessimistic.

Overseas investors purchased a combined net total of $6.01 billion in South Korean, Thai, Indian, Indonesian, and Malaysian bonds last month, compared with net buying of $6.37 billion in January, regulatory and bond market association data showed.

But concerns about emerging Asia bonds are rising due to higher US interest rates, soaring inflation and growing global fallout from the war in Ukraine.

South Korean bonds received foreign purchases of $3.29 billion last month, while Thai bonds drew $1.73 billion, their fifth consecutive monthly inflows.

Malaysian and Indonesian bonds also received foreign capital worth $750 million and $651 million, respectively. On the other hand, Indian bonds suffered outflows of $421 million after an inflow of $698 million in the previous month.

“Considering that the Russia-Ukraine conflict occurred in the second half of February, whole-month bond flow figures may not reflect the full impact on foreign demand for emerging Asia bonds,” said Duncan Tan, a strategist at DBS Bank.

Risks Weighing on Emerging Asia Bonds

“In the near term, with geopolitical risks and Fed lift-off expected to weigh on emerging Asia bonds, foreign bond inflows are likely to be weak.”

The US 10-year Treasury yield rose to the highest levels in two-and-a-half years ahead of an expected Federal Reserve decision later on Wednesday to raise US interest rates for the first time in three years.

Despite uncertainties over the broader impact of the Ukraine crisis, analysts expect the Fed to be aggressive this year to stem surging prices, with annual inflation in February rising at the fastest pace in 40 years.

“Geopolitical tensions, tighter US liquidity and high energy prices will all weigh on portfolio flows into Asia,” Khoon Goh, head of Asia research at ANZ, adding that he expects outflows from emerging Asia bonds and equities in the near term.

Reuters, with additional editing by George Russell

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.