November 9, 2017 / 8:05 AM / a year ago

GRAPHIC-Foreign investors turn net buyers of Asia stocks for first time since June

Nov 9 (Reuters) - Foreign investors returned to Asian equities in October, following three consecutive months of retreat, lured back by the region’s strong economic growth and a rise in corporate earnings.

October data from seven Asian exchanges showed foreign investors bought a net total of about $2.5 billion, the highest in four months.

Demand for chips and smartphones drove up the region’s exports and spurred earnings of technology companies, such as Samsung electronics, and Taiwan Semiconductor Manufacturing Company. A surge in crude oil prices bolstered earnings of energy sector firms.

In the third quarter, South Korea’s economic growth accelerated to its fastest in seven years, while growth in Taiwan was the strongest in 2-1/2 years.

“The latest economic and earnings growth reports have been surprising on the upside for the region, likely to be the key draw for investors to Asian markets,” said Jingyi Pan, market strategist at IG markets in Singapore.

Last month, foreigners purchased $2.7 billion and $1.6 billion in South Korea and Taiwan equities respectively. However they sold more than $1 billion in Indian equities.

Analysts said foreign sales were higher for Indian equities due to steeper valuations, compared with other countries in the region. India’s price-to-book ratio stood at 3.1 at the end of October, against Asia’s average of 1.7.

MSCI’s broadest index of Asia-Pacific shares excluding Japan hit a decade high in October. “Compared historically, Asian markets’ valuations do appear to be on the higher end,” said IG Market’s Pan.

“However, when compared to other popular markets such as that in the U.S., Asian markets may remain ones better valued, giving it room on the upside.”

Since July, foreign inflows have lulled in Asia as major Western central banks have become more hawkish about their monetary policy outlook, which has reduced the appeal for Asian equities.

The U.S. Federal Reserve is set to hike its interest rate for the third time this year in December, while the ECB said it would cut asset purchases to 30 billion euro from 60 billion euros starting January.

Khoon Goh, Head of Asia Research at ANZ, expects some volatilty in portfolio flows into the region in coming months.

He said ongoing policy normalisation by major central banks will affect foreign flows into Asia, however that will be offset by the stronger global growth backdrop.

“All in all, I still expect flows to remain positive in Asia, although the pace of the inflows will not be as large as what we have seen in the first half of the year,” Goh said.

Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Sam Holmes

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