GRAPHIC-China, S.Korea lead foreign inflows into Asian bonds in Feb

March 10 (Reuters) – Foreign investors were net buyers of Asian bonds last month, with most of the money pouring into China and South Korea, while Indonesia and some other countries saw outflows.

Overseas investors bought a net $21.3 billion of Asian bonds in February, down from $29.8 billion in January, according to data from regulatory authorities and bond market associations.

February’s purchases included a net $14.78 billion of Chinese bonds and $8 billion of South Korean bonds, the biggest since at least 2009 for the latter, as investors focused on stronger economies amid a rise in U.S. Treasury yields.

Duncan Tan, a strategist at DBS Bank, said South Korean bonds tend to exhibit safe haven characteristics whenever there is volatility or risk aversion in Asian markets.

“Whether it is the ongoing global rates sell-off or 2018/2019 U.S.-China trade wars, South Korean bonds would usually see a sizable jump in foreign buying,” he said.

U.S. Treasury yields touched a one year high last month, raising concerns of another “taper tantrum”, like the surge in market volatility in 2013 when foreigners dumped emerging market (EM) assets, pushing their currencies lower.

But some analysts argue EM countries are poised for strong growth this year as the world recovers from the pandemic, potentially boosting commodity prices and global trade.

Malaysian bonds also attracted $1.77 billion of inflows last month, the data showed.

However, Indonesian bonds saw a net $2.24 billion of outflows as its central bank cut interest rates for the sixth time during the pandemic.

Investors also sold a net $894 million and $125 million of Indian and Thai bonds respectively.

Ashish Agrawal, Asia head of FX and EM Macro Strategy Research at Barclays, said mainland China’s rising bond inflows were mainly due to their inclusion in some global indexes in 2020 and their upcoming inclusion in the FTSE Russell World Government Bond Index (WGBI).

“Index inclusion flows also could be significant in 2021. If included in global bond indices, we estimate potential passive inflows of ~US$23-36bn in India and ~US$60bn in Korea over 2022-23,” he said.

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