Global funds pull money from Asia at fastest pace in four years amid Iran war

SINGAPORE – Overseas investors are pulling money out of emerging Asian stocks at the fastest pace in nearly four years as an

escalating conflict in Iran

triggers a reassessment of risk across global markets.

Global funds have sold a net US$11 billion (S$14.1 billion) of shares in developing Asia excluding China this week, set for the largest outflow since March 2022, according to data compiled by Bloomberg.

They have withdrawn a record US$7.9 billion from Taiwan, roughly US$1.6 billion from South Korea and about US$1.3 billion from India.

The outflows have contributed to a savage sell-off in regional equities that included a

record one-day drop in South Korea’s Kospi index

, and a series of trading halts in some markets.

The MSCI Asia Pacific Index has slid more than 6 per cent this week, putting it on track for its biggest loss in almost six years.

The foreign exodus marks a reversal of one of the most profitable trades of recent months: “Sell America, Buy Asia”.

This involved rotating out of expensive US equities and into Asian ones, banking on a softer greenback, subdued inflation and demand for regional chip stocks due to an artificial intelligence boom.

Global funds had been buying Asian stocks “on expectations of a weaker dollar and benign inflation, but the flare-up in Iran has thrown both assumptions into question”, said Mr Gary Tan, a fund manager at Allspring Global Investments.

“Investors are now reassessing whether heightened risk aversion could keep the dollar firmer for longer, and whether higher oil prices might reignite inflation pressures.”

The slump in Asian equities marks a reversal from the region’s strong start to the year relative to US equities before the Iran conflict erupted, when global investors were increasingly rotating capital towards the region. BLOOMBERG