Foreigners accumulate Asian equities in February on trade deal hopes

Foreigners were net buyers of Asian stocks for the second consecutive month in February, buoyed by rising optimism about a trade deal between the United States and China. Overseas investors bought $5.04 billion worth of regional stocks last month, data from South Korea, Taiwan, India, Thailand, the Philippines, Indonesia and Vietnam showed. The inflows in the first two months of 2019 rose to $10.9 billion, the biggest in four years.
The broad market rally that continued into February was "on the back of the string of positive rhetoric surrounding US and China, culminating in the eventual extension of the March 1 tariff deadline and suggestion of a potential Trump-Xi summit at the end of March", said Jingyi Pan, a Singapore-based market strategist at financial services firm IG.
MSCI's broadest index of Asia-Pacific shares added over 8 percent in the first two months of this year, the biggest since 2012. In February, the index rose 1.3 percent. In February, Indian equity markets led the region with an inflow of $2.4 billion, helped by a surprise rate cut by its central bank to boost the slowing economy.
Foreigners also increased their holdings in Taiwan and South Korea, as the two are the most trade sensitive economies in the region and stand to benefit more if US-Sino tensions abate. Taiwan and South Korean stocks together saw inflows of about $2.7 billion last month. Though regional stocks witnessed solid inflows so far this year, the recent data showing worsening trade and factory output could affect sentiment, analysts said.
China's exports in February fell 20.7 percent from a year earlier, which was its worst decline in three years, pointing to further slowdown in the economy despite a spate of support measures. "What is needed to continue to drive inflows into the region are signs that growth is recovering. Judging from recent export and PMI data, this is not occurring yet," Khoon Goh, ANZ's Head of Asia Research in a report.
Also, some analysts said MSCI's decision to quadruple the weighting of Chinese mainland shares in its global benchmarks later this year could affect flows into other emerging markets. MSCI had earlier said the move could draw more than $80 billion of fresh foreign inflows into China.
Goldman Sachs analysts said the MSCI's move could reduce India's weightage in the MSCI Emerging Market index by 20 basis points to 8.2 percent by the end of November this year, which could result in a foreign outflow of about $3.8 billion.