July 18, 2018 / 8:33 AM / 3 months ago

GRAPHIC-Foreigners sell Asian bonds for third straight month in June

July 18 (Reuters) - Foreigners withdrew money from Asian bond markets for the third consecutive month in June amid concerns that increasing trade frictions between the United States and China will disrupt the region’s economic growth.

Data from central banks and bond market associations showed foreigners sold a total of $1.9 billion of bonds from India, Indonesia, Thailand, South Korea and Malaysia in the last month.

This year, the United States has announced tariffs on steel and aluminium imports and an initial $34 billion of Chinese imports. It is also threatening another round of tariffs on an additional $200 billion in Chinese goods.

Asian countries play a major role in China’s supply chains and any disruptions in its trade tend to affect regional bond and equity markets as a whole.

In June, Malaysian bond markets led with $1.65 billion of foreign sales, while Indian bonds saw $1.6 billion of outflows due to concerns over its high inflation and trade deficits.

However, Indonesian markets saw reduced outflows, thanks to the central bank hiking its policy rates by a total of 100 basis points in six weeks, between May 17 and June 29.

“There has been proactive action from the central bank in this cycle and that helps,” said Salman Ahmed, Chief Investment Strategist at Lombard Odier Investment Managers.

“We think once outflows subside, Indonesia stands to benefit given very high real rates due to low inflation.”

On the other hand, South Korean bonds saw inflows of $1.85 billion in the last month.

Khoon Goh, ANZ’s head of Asia research, said that outflows would decrease in coming months as policymakers have started to take steps to prevent outflows.

“We might still see some volatility in capital flows in the region, But we are unlikely to see the sorts of sizeable outflows that we witnessed in the last few months,” Goh said.

Reporting by Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Kim Coghill

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