Analysis: Asia's great investor rotation flows to North from South

Thu Aug 15, 2013 3:56am EDT
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By Vidya Ranganathan and Vikram Subhedar

SINGAPORE/HONG KONG (Reuters) - Alongside the great rotation from bonds to equities and from emerging to developed markets that has been 2013's overriding investment theme, Asia is seeing its own migration in portfolio flows: from the South to North.

Foreign investment flows have lifted stock markets in China, South Korea and Taiwan since July, the first and tentative signs that investors still see pockets of value at a time the outlook for emerging markets is glum.

The appeal of these markets comes from several factors.

While the consensus calls are still for an outperformance of equity markets in Japan, the United States and the rest of the developed world, a growing number of investors believe there is scope for Asia's trade-driven, open economies to do well as U.S. growth recovers.

To add to the mix, stock prices have been hammered in China and Korea, based on what some analysts believe are exaggerated perceptions of a collapse in Chinese growth, and these countries are buffered by huge trade surpluses.

South Korea received foreign portfolio flows totaling $853 million into equities in July, reversing part of the heavy outflows in previous months, data collated by BNP Paribas showed. Korea's bond market has received more than $12 billion this year.

Foreigners also bought $2.75 billion of Taiwan equities last month, offsetting sales in June. They sold $253 million of Indonesian equities and heavy amounts of bonds and stocks in India.

Data on flows into Chinese shares and bonds is scarce, but the China Enterprises Index .HSCE of the top Chinese listings in Hong Kong has jumped about 9.5 percent since the end of June.   Continued...

Currency dealers watch a monitor as a screen (R) shows South Korea's main stock market index, KOSPI, at a dealing room of a bank in Seoul April 4, 2013. REUTERS/Lee Jae-Won