(Reuters) - Overseas investments into Asian bonds turned negative for the first time in three months in April, and analysts predicted the regional assets to come under more pressure due to an escalation in the Sino-U.S. trade dispute.
The optimism over a trade deal dwindled after the United States raised levies to 25% from 10% on $200 billion more of Chinese goods on May 10. China said it would impose higher tariffs on a range of U.S. goods from June 1.
Foreigners sold a net $3.64 billion of regional bonds last month, the highest since May 2018, data from regional banks and bond markets associations in Malaysia, Thailand, Indonesia, South Korea and India showed.
Malaysia led the regional outflows last month, witnessing foreign sales of $2.38 billion, after global index provider FTSE Russell said it could drop Malaysia from the FTSE World Government Bond Index because of concerns about market accessibility and liquidity.
Indian and Indonesian bonds saw outflows of $738 million and $476 million, respectively, in April. The data showed foreigners have further sold $538 million in the two markets so far this month.
“As long as we have this risk-off scenario playing its part, especially the trade war and geopolitics, investors will stay clear of the emerging markets,” said Prakash Sakpal, economist Asia at ING Bank.
“The outlook is not great for the high-yielding bonds like Indonesia and the Philippines, even though the central banks in some of the markets are turning out to be accommodative.”
Malaysia and Philippine central banks cut their policy rates this month in efforts to prop up their economies amid concerns over slowing global growth.
In April, South Korean bonds attracted inflows of $452 million.
“Korean government bonds could offer good broad protection against escalations in global trade disputes,” said Radhika Rao, economist at DBS Bank.
“Recall in 2018, Korean bonds, together with China bonds, were huge beneficiaries of elevated U.S.-China trade hostilities.”
Thai bonds also witnessed foreign outflows of $493 million in April.
Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; editing by Gopakumar Warrier