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Money flows into Asian equities on expectations of rate cuts, trade optimism

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FOREIGN investors turned net buyers of Asian stocks in June as optimism ahead of a meeting between US President Donald Trump and his Chinese counterpart Xi Jinping, along with expectations of US interest rate cuts bolstered sentiment.

Overseas investors purchased a net $4.2 billion worth of equities in June, data from stock exchanges in South Korea, Taiwan, India, Thailand, Philippines, Indonesia, and Vietnam showed.

The leaders of the US and China agreed late last month to restart trade talks after Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei in order to reduce tensions with Beijing.

A collapse in trade talks had prompted sharp foreign outflows from Asian equities in May.

“The US-China trade truce at the G20 meeting will likely support further inflows over the weeks ahead but this will have to be balanced against the impact of slowing growth and elevated equity valuations in some countries (India, Indonesia),” noted Mitul Kotecha, a senior emerging markets strategist at TD Securities.

“On balance, we expect portfolio inflows to Asia to continue to strengthen but to remain discriminatory.”




In June, Thai equities attracted $1.5 billion worth of foreign money as the country’s political uncertainty ended after General Prayuth Chan-ocha secured a needed majority in the parliament.

Sino-US trade optimism helped Taiwan and South Korea to secure higher inflows last month, as the two countries have extensive ties with tech companies in China and are part of their supply chains.

However, India received just $374 million worth of inflows, the lowest in five months, as concerns over sluggish consumption and slowing growth overtook last month’s national election euphoria.

So far in July, foreign investors have sold a net $451 million in Indian equities. In its annual budget on Friday, the government proposed to increase listed companies’ minimum public shareholding and raise the income tax surcharge on foreign portfolio investors.

June inflows into Asia was also helped by expectations that the US Federal Reserve would aggressively cut interest rates soon to boost the economy.

However, a recent rebound in US job growth has reduced the likelihood the Fed will slash rates at its next meeting later this month, pressuring equity markets globally.

“The Trump-Xi meeting did indeed result in another trade truce, and both sides have restarted trade talks. But a deal could still be some time away, and is far from a guarantee,” noted Khoon Goh, head of Asia research at ANZ Research.

“A rate cut at the next FOMC meeting at the end of July is also far from a done deal given the still strong state of the US labor market.” — Reuters

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