By Gaurav Dogra and Patturaja Murugaboopathy
(Reuters) - Foreigners turned net sellers of Asian equities in June for a second consecutive month, as growing inflationary pressure and a spike in coronavirus cases in the region tempered risk appetite.
Cross-border investors sold a combined net total of $725 million worth of equities last month in South Korea, Taiwan, the Philippines, Vietnam, Indonesia, and India, data from stock exchanges showed.
That took the tally to $24.6 billion outflows in the first half of the year, compared with total inflows of $21.6 billion in the second half of last year.
Asian equities have lagged behind the U.S. and European equities' rally this year, undermined by a spike in COVID-19 infections and as inflation levels raised concerns that the U.S. Federal Reserve might hike its interest rates earlier than expected.
Foreign investments in Asian equities https://fingfx.thomsonreuters.com/gfx/mkt/oakpedooavr/Foreign%20investments%20in%20Asian%20equities.jpg
The shift in flows this year doesn't suggest a dent in earnings recovery hopes for the region, Herald van der Linde (NYSE:LIN), head of Asia equity strategy at HSBC, said.
"We have seen stronger and higher bond yields weigh on Asian equities. That led to a rotation from Asian equities into developed market equities," he said.
Taiwan and South Korea led the outflows last month, facing net sales of $2 billion and $795 million, respectively.
Thailand, Vietnam, Philippines also witnessed outflows.
South Korea has seen a spike in coronavirus cases, fuelled by the highly contagious Delta variant, while Thailand is also going through a prolonged virus outbreak.
On the other hand, Indian equities secured $2.4 billion worth of foreign money in June, after facing outflows in the previous two months.
Goldman Sachs (NYSE:GS) said Asian equities are trading at a nearly 30% discount vs the United States, and a consolidation in U.S. equities could prompt flows to move into non-U.S. equities including Asia.
"Asian markets remain fundamentally strong, and any outflows are more about re-balancing than anything else," Paul Sandhu, head of multi-asset quant solutions at BNP Paribas (OTC:BNPQY) Asset Management, said.