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Wednesday May 19, 10:52
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Foreign funds cut Asian exposure, Taiwan hit hard
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Foreign investors have pulled at least $5.0 billion from Asian stock markets in the past three weeks, with the hardest knock taken by Taiwan as China’s sabre rattling over cross-strait relations added fuel to the fire.
Billions of dollars have been wiped from the regions main stock markets amid fears of a hike in U.S. interest rates, soaring global crude oil prices, a likely investment slowdown in China and political events unfolding from South Korea to India.
Investors have sold a net $988 million of South Korean stocks, $2.7 billion of Taiwanese stocks and about $921 million of Thai equities in the past three weeks, the latest data from Nomura International shows.
Korea and Taiwan account for over 40 percent of the benchmark MSCI Far East ex-Japan Index, and stocks such as Samsung Electronics Co Ltd, Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp are big holdings of most foreign portfolios.
Foreign funds have sold more than $600 million of Indian stocks in the past two weeks as the nation’s stock market suffered its worst-ever crash on worries a surprise Congress-led coalition could stall economic reforms and privatisations.
Such outflows from Asian markets are in stark contrast to the huge inflows witnessed last year.
"We are seeing a retreat from higher risk assets at the moment, and that would fit with foreign money exiting Asian markets -- and certainly after very large inflows during the course of last year," said Geoff Lewis, head of investment services at JF Funds Ltd, which manages $53 billion of Asian assets.
Foreign funds have bought a net $11.8 billion of Korean equities and $15.9 billion of Taiwanese stocks in 2003, data from Nomura showed.
Foreign funds invested a record $7.7 billion in Indian stock and bond markets in 2003, the most since they were allowed to invest in 1993.
But global economic uncertainty combined with the region’s volatile politics have spooked foreign investors who are now switching to safer assets or just raising their cash holdings.
A monthly fund manager survey conducted by Merrill Lynch showed that Asian asset allocators increased their cash levels to 5.1 percent in May from 4.8 percent in April.
Taiwan, the darling of foreign investors last year, has suffered the most.
Doubts about the sustainability of U.S. economic growth, domestic political upheaval on the island after presidential elections and Beijing’s stern warning against any push for independence has taken a toll on domestic assets.
"I have been surprised that UMC has been hit so hard in the last couple of weeks, because if you look at the fundamentals of the company, things are still very good," said Ross Teverson, investment manager at Standard Life Investments.
"Utilisation is close to 100 percent, the pricing environment appears to be strong and guidance for the second half is positive. I think it’s a victim of negative fund flows," Teverson said.
INDIA COULD SURPRISE ON THE UPSIDE
Foreign funds have lightened their Indian equity holdings in the past two weeks, wary that a communist-backed coalition led by the Congress Party would fail to implement tough economic reforms.
"When early electoral rounds began to show that things were not going well for the BJP, we became cautious and had raised cash ahead of the sharp fall on Friday and Monday. But 10 pct cash is not going to protect you from that kind of carnage," said Lewis.
The 30-share Bombay Stock Exchange Index plunged 11 percent on Monday after recording its worst-ever intra-day points fall of 564.71 points.
But investor nerves have calmed on hopes that former finance minister and architect of India’s economic reforms programme, Manmohan Singh, could take over as the new prime minister after Congress leader Sonia Gandhi turned down the job.
"It is just a knee-jerk reaction. The former finance minister, apparently the father of reforms in India, becoming the prime minister adds a lot of confidence to the market," said Singapore-based Christopher Wong, investment manager at Aberdeen Asset Management, which manages $6.0 billion of equities in Asia.
The Bombay Stock Exchange Index on Wednesday hovered near the key 5,000 level, building on the gains posted the day before.
Money managers said the long-term outlook for Indian assets remained positive as the country had made impressive progress in corporate restructuring and registered strong economic expansion.
"The long-term positives for India wouldn’t be helped by a weak ineffectual government, but they are not going to be nullified either," JF Funds’ Lewis said.
"The market is now expecting so little from a Congress coalition that it’s creating the scope for a potential upside at some point within the next six to twelve months," he added.
(Reuters)
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