Foreign Investors Return to Asian Equities Amid Optimism Over Fed Rate Cycle Peak

Foreign investors are cautiously reentering Asian equities this November, marking a turnaround from a three-month trend of heavy selling. This shift in sentiment comes as concerns ease over aggressive interest rate hikes in developed markets, reigniting risk appetite.

There is a growing belief that U.S. policy rates may have reached their peak, with the possibility of rate cuts as early as May. This change in outlook follows what many see as a scaling back of the Federal Reserve’s hawkish stance, coupled with softer monthly job data. Data from several Asian equities, including Taiwan, India, South Korea, Indonesia, the Philippines, Thailand, and Vietnam, reveal that foreign investors have purchased a net of $2.05 billion worth of stocks in the past week, following net selling totaling around $11.16 billion in October.

Yeap Jun Rong, a market strategist at IG in Singapore, notes, “We are observing a shift from bearish sentiments as we enter November, with markets hopeful that the Fed’s rate hikes have come to an end. The improved risk environment could attract more investments in Asian equities as we move into the seasonally stronger period of the year.”

In response to changing rate expectations, U.S. 10-year Treasury yields have dropped by roughly 30 basis points this month, providing relief to sectors sensitive to interest rates, such as technology. This has renewed interest in South Korean and Taiwanese stocks.

Last Quarter Study:

In October, 10-year yields reached a 16-year high of 5.021%, driven by optimistic growth forecasts and an expanding fiscal deficit. As investors awaited guidance on the future of interest rates from central bank officials, stocks experienced a slight decline. European stocks (Stoxx 600) dipped 0.1%, while U.S. equity futures remained relatively stable. Meanwhile, 10-year Treasury yields increased by three basis points to 4.6%. West Texas Intermediate held at $77, near a three-year low, but Marks & Spencer Group Plc saw a 10% surge in its share price after posting strong profits and reinstating dividends.

JPMorgan Sees Potential Upside for Asian Equities

Trader’s Eyeing the Market:

Traders are closely monitoring how global central banks will respond to the drop in government bond yields, which has the potential to complicate efforts to control inflation. Upcoming events include speeches from U.S. policymakers, including Federal Reserve Chair Jerome Powell and New York Fed President John Williams, as well as Bank of England Governor Andrew Bailey and officials from the European Central Bank.

Federal Reserve Officials Aim to Temper Market Expectations for Rate Cuts,” stated Todd Schubert, a senior fixed-income strategist based in Dubai at the Bank of Singapore. “The market is currently underestimating the Fed’s determination to reduce inflation to 2%, and we shouldn’t anticipate a sustained upswing in risky assets until there is concrete evidence of a significant decline in inflation.”