By Gaurav Dogra
(Reuters) - Asian equities in May clocked their biggest foreign outflows in 14 months due to a spike in COVID-19 cases in the region and as growing inflationary pressure tempered risk appetite.
Data from stock exchanges in South Korea, Taiwan, Philippines, Thailand, Vietnam, Indonesia and India showed foreigners net sold a combined total of $12.05 billion in regional equities, the highest since March 2020.
"The outflows in May were driven by different reasons in different markets, but the common thread was COVID-19 resurgence," Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas (OTC:BNPQY), said.
Graphic: Foreign investments in Asian equities: https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxmdrevx/Foreign%20investments%20in%20Asian%20equities.jpg
He said markets such as Taiwan, Thailand and India, which faced a resurgence in COVID-19 cases, were sold down by FIIs in anticipation of decline in consumption and cuts in earnings estimates.
South Korea led outflows, seeing net sales of $7.97 billion last month on concerns over rising inflation, which has reinforced calls for gradual monetary tightening.
Taiwan faced outflows worth $2.1 billion, with the sub-tropical nation dealing with its worst drought in history after no typoons directly hit the island last year, meaning much less rain.
Thai and Indian equities saw net sales of $1.1 billion and $389 million, respectively.
India's daily infection rates have been falling in recent weeks, offering hope that a devastating second week is ebbing.
However, worries still linger, as just 3% of the country's population have been vaccinated so far, which is the lowest rates among the 10 countries with the most COVID-19 cases.
BNP Paribas' Raychaudhuri said he expects foreign flows to improve selectively in a few Asian markets in the second half of 2021, particularly in Taiwan and South Korea.
"Korea and Taiwan should benefit in the medium-term as corporate earnings in both markets are strongly driven by global consumption revival – particularly that in the developed economies – a trend that we believe is likely to last for a while," he said.