Five of the largest emerging Asian bond markets are jointly receiving net inflows for the first time in three years, suggesting investors are getting more upbeat on the asset class.
Overseas funds have boosted holdings of debt in each of South Korea, Thailand, Indonesia, India and Malaysia since the start of July, according to data compiled by Bloomberg. If the inflows continue through the end of September, it’d be something that hasn’t been seen on a quarterly basis since the middle of 2021.
“Many global investors would have been underweight lower yielding Asian bonds — but once Fed cuts became more certain, they had to reduce that underweight,” said Charlie Robertson, head of macro strategy at FIM Partners. “US dollar weakness has also re-opened the prospect of rate cuts” in the region.
The broad-based inflows indicate investors are turning more positive on emerging-market debt as a whole as the Federal Reserve moves closer to cutting interest rates. That contrasts with the underperformance of developing nation bonds during the US central bank’s period of higher-for-longer borrowing costs.
While many emerging economies in Asia are expected to cut interest rates along with the Fed, the quantum of easing is forecast to be less than it will be the US. For example, investors are pricing in roughly two percentage points of rate cuts for the Fed by the end of 2025, but only about 75 basis points in South Korea during the same period, swap markets show.
Chart: Bloomberg
