US banking turmoil leading investors to China, Asian markets
- A Citibank analysis shows Asian financial markets have tightened less than in the US and most Asian currencies have gained ground against the US dollar
- China, with its easing monetary policy and a belated reopening from Covid, is the top attraction for investors, analysts say
The US-led banking turmoil is driving money into Asian assets, with investors betting that China and the region’s emerging economies are in a better position to weather the fallout.
A Citibank analysis of global financial conditions shows Asian financial markets have tightened less than in the US and most Asian currencies have gained ground against the US dollar. An index of financial stocks in the region, excluding Japan, has risen since March 10 – the day Silicon Valley Bank collapsed – compared with an almost 10 per cent drop in the American banking index over the same period.
“We think Asia still remains relatively well-insulated,” said Johanna Chua, managing director and head of Asia-Pacific economic and market analysis at Citi. “A US-centric slowdown means the US dollar will track lower, which is more supportive of capital flows in Asia.”
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Economists say one factor working in favour of Asia-Pacific is a generally softer pivot in monetary policy, with central banks in Australia, South Korea, Indonesia and India among those pausing their tightening cycles. China, with its easing monetary policy and a belated reopening from Covid, is the top attraction for investors.
That is reflected in the US$5.5 billion of funds that flowed into emerging-market equity funds over the four weeks up to the end of March, led by Asia, according to figures from TD Securities, citing EPFR Global data. More than 70 per cent of that money went to China. At the same time, developed-market equities suffered net outflows of US$8.6 billion, with the US hardest hit.
“Investors are still looking at EM Asia as perhaps the most-favoured region, followed by Europe and then perhaps by the US,” David Chao, global markets strategist for the Asia-Pacific at Invesco Asset Management told Bloomberg Radio on April 4. “If you think that the Fed is going to hit a pause button on interest-rate hikes, that would certainly drive capital flows back to EM Asia.”
An end to the cycle of Fed hikes, amid the financial stability risks and signs of cooling demand, could aid Asia by easing pressures from a strong dollar on external finances and reducing the appeal of the US dollar as a safe haven.