Foreigners pare holdings in Asian equities at start of February amid stocks rout

Reuters: Foreigners trimmed their holdings in Asian equities in the first week of the month, as regional markets were enveloped in a broad global equities sell-off and surging volatility in the wake of rising US bond yields.

Exchange data showed, foreigners sold about $2 billion in South Korean equities and $1.3 billion in Taiwan equities so far this month. Indonesia, Philippine and Thailand markets also saw outflows in that period.

The sell-off was triggered by a sharp rise in US bond yields following Friday’s data that showed US wages increasing at the fastest pace since 2009, raising the alarm about higher inflation and with it potentially higher interest rates. The 10-year US Treasuries yield dropped to 2.7659 on Wednesday in Asian hours after rising to a four-year high of 2.885 earlier this week.

Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said flows into Asia financial assets depend on US financial conditions such as S&P returns, the CBOE Volatility index (VIX) and credit spreads.

“Financial conditions in the US are going to be more challenging than last year given higher volatility, the S&P risk (especially if US-Treasury resumes their rise) and the risk of credit spread widening,” Benzimra said. The CBOE Volatility index, the closely followed “fear-index” measure of expected near-term stock market volatility, jumped to a 2-1/2 year high of 37.32 on Tuesday. It was last trading at 29.98.