By Gaurav Dogra and Patturaja Murugaboopathy
(Reuters) - Asian equities attracted substantial foreign investment in November, signalling the prospects of continued inflows next year, bolstered by a decrease in U.S. Treasury yields and rising optimism for potential Federal Reserve rate cuts.
According to data from stock exchanges across Taiwan, South Korea, India, Indonesia, the Philippines, Thailand, and Vietnam, foreign investors bought a net $11.16 billion in stocks last month, the most since May.
The inflows were underpinned by cooler-than-expected U.S. October inflation data and dovish comments from Federal Reserve officials, which led to sharp declines in both U.S. Treasury yields and the dollar last month.
The yield on 10-year notes fell by 52.5 basis points in November, marking the steepest monthly drop since August 2011, while the dollar index saw a decrease of about 3%, its largest monthly decline in a year.
"Foreign investors may have more risk appetite for EM assets subject to lower USD interest rates and/or weaker USD," said Jason Lui, head of APAC equity derivatives strategy at BNP Paribas (OTC:BNPQY).
So far this year, Asian equities have received a net $14.03 billion, a significant turnaround from the approximately $57.52 billion in net selling in 2022.
In the last month, Taiwanese stocks attracted foreign inflows of $7.58 billion, the highest since at least 2008. South Korean shares attracted $3.26 billion, while Indian equities received net inflows of $1.08 billion.
"The strong inflows into Korea and Taiwan recently may be more related to the global excitement on AI and semiconductor demand," he said.
Philippine stocks saw a slight $19 million in foreign inflows after three months of outflows. However, Thai and Vietnamese shares saw outflows of $598 million and $146 million, respectively, with foreigners remaining net sellers since February and April.
Amid concerns about a global economic slowdown due to high interest rates and inflation, analysts predict Asia may show resilience in the coming year and outperform other regions.
"Despite a weak global backdrop, we believe growth in most Asian economies will outperform U.S. and European growth in 2024 amid a semiconductor-led export tailwind, steady domestic demand, and stronger fundamentals," Sonal Varma, chief economist at Nomura, said in a note.
"Over the medium term, Asia's strong fundamentals and growth prospects mean the region is well-placed to attract large capital inflows."