Foreign investors have stepped up net selling in Asian equity markets in May as worries over war-driven inflation and higher borrowing costs weigh on corporate profit outlooks across the region. According to LSEG data covering exchanges in South Korea, Taiwan, Thailand, India, Indonesia, Vietnam and the Philippines, foreigners have sold a net $24.75 billion of regional equities so far this month.
The pace of outflows intensified in the latest week, when foreign holders divested a record $17.27 billion of shares, the data showed. That surge in selling coincided with another strong move higher in U.S. long-term yields: the 30-year U.S. Treasury yield climbed to its highest level since 2007 this week, which added further pressure on Asian equities by increasing long-term borrowing costs and weighing on valuations in growth-heavy markets.
"Higher yields could increase pressure on equities as tighter financial conditions could weigh on valuations, particularly in growth sectors," said Paolo Broccardo, CEO at BankPro, in a note.
South Korea experienced the largest single-market wave of foreign exits, with a record $13.14 billion of outflows in the most recent week. Other notable weekly foreign divestments included $2.88 billion out of Taiwan, $1.35 billion out of India and $184 million out of Indonesia.
Herald van der Linde, head of equity strategy for Asia Pacific at HSBC, noted that certain Asian equity markets are especially sensitive to rising yields. "Mainland China H-share, Hong Kong, Korea and Taiwan equities are traditionally most sensitive to an increase in yields," he said. He added that concentrated exposures in Korea and Taiwan amplify the risk: "30% of Asian funds’ exposure is to a handful of stocks in Korea and Taiwan. Any de-risking may cause more volatility in these markets."
Not all markets in the region saw outflows. Indonesian and Thai equities attracted foreign inflows of $511 million and $215 million respectively so far this month, offering some offset to broader selling across other Asian exchanges.
The combination of geopolitical-driven inflation concerns and rising long-term U.S. yields has pushed international investors to reassess positions in Asia, particularly in markets and sectors judged most vulnerable to tighter financial conditions. The recent pattern of concentrated selling underlines how shifts in global bond yields can quickly affect equity allocations and market volatility in the region.
Key data points:
- Net foreign selling across selected Asian exchanges so far in May: $24.75 billion.
- Record weekly foreign divestment in the latest week: $17.27 billion.
- Record weekly foreign outflow from South Korea: $13.14 billion.
- Other weekly outflows: Taiwan $2.88 billion, India $1.35 billion, Indonesia $184 million.
- Inflows so far this month: Indonesia $511 million, Thailand $215 million.