Asian equities attracted strong foreign inflows in May as concerns over an immediate economic hit from higher US tariffs eased, prompting a return by investors who had previously exited large and concentrated positions in the region.
The inflows marked a sharp reversal after four consecutive months of net foreign selling.
According to data from LSEG, foreign investors bought approximately $10.65 billion worth of equities across India, Taiwan, South Korea, Thailand, Indonesia, Vietnam, and the Philippines, registering their largest monthly net purchase since February 2024.
US President Donald Trump’s announcement of reciprocal tariffs in early April stoked concerns over the impact on Asian exports, exporter margins, and regional supply chains, but a subsequent 90-day pause for most countries later in the month helped ease investor fears and revive interest in regional assets.
Goldman Sachs said it has revised its earnings growth forecast for MSCI Asia Pacific ex-Japan (MXAPJ) to 9 per cent for both 2025 and 2026, raising estimates by 2 and 1 percentage points, respectively, citing stronger macro growth in China and US-exposed markets.
The upgrade was also supported by $600 billion in AI-related investments from Saudi Arabia to US firms, which are expected to benefit Taiwan and Korea, though the impact may be partially offset by a weaker dollar, the brokerage said.
Taiwan equities witnessed $7.28 billion worth of foreign inflows, the largest monthly cross-border net purchase since November 2023.
Foreigners also acquired a significant $2.34 billion worth of Indian stocks in their largest monthly net purchase since September 2024.
South Korean, Indonesian and Philippine stocks also saw foreign inflows worth a net $885 million, $338 million and $290 million, respectively, while Thai stocks suffered $491 million of net selling.
Despite heightened market volatility in the first half of the year driven by concerns over President Trump’s trade policies, the MSCI Asia-Pacific Index has risen about 8.8 per cent year-to-date, outperforming both the MSCI World Index, which is up 5.4 per cent, and the S&P 500 Index, which has gained 0.98 per cent.
Asian currencies were steady on Friday and poised for weekly gains after a phone call between US President Donald Trump and Chinese leader Xi Jinping signalled further trade talks, while most regional equities tracked Wall Street’s overnight losses. In India, equities reversed course to rise 0.9 per cent after the Reserve Bank of India delivered a larger-than-expected cut to its key repo rate and lowered the cash reserve ratio to bolster economic growth.
“The RBI may have decided to move quickly to a more appropriate policy rate level. A shift towards neutral stance means more rate cuts may be unlikely in the near-term,” Jeff Ng, Head of Asia Macro Strategy at SMBC, said. The rupee inched up 0.1 per cent to 85.74 per dollar. Other regional currencies moved within a narrow band. The Thai baht and Singapore dollar were largely flat but were on track for weekly gains of 0.5 per cent and 0.4 per cent, respectively.
The Malaysian ringgit was up nearly 0.6 per cent for the week. MSCI’s index of emerging market currencies was flat after touching an all-time high on Thursday. The index is up 0.5 per cent for the week.
The dollar index was little changed, after hitting a six-week low on Thursday, and was headed for a weekly loss of 0.5 per cent.
Trump’s erratic tariff moves and a worsening US fiscal outlook have triggered a flight from the dollar, prompting analysts to expect most emerging market currencies will retain or build on their gains over the next six months.
In their closely watched hour-long phone call on Thursday, Xi pressed Trump to ease trade tensions that have rattled the global economy and warned against provocative moves on Taiwan, according to a summary released by the Chinese government. But Trump said on social media that the talks, focused primarily on trade, led to “a very positive conclusion”.
“The talks look positive, and coupled with Federal Reserve rate cut expectations due to weak US data, might lead to further USD softening,” said Saktiandi Supaat, Head of FX research at Maybank.
Markets are now bracing for the US jobs and non-farm payrolls report due later in the day, with concerns that a downside surprise could stoke stagflation fears and boost pressure on the Federal Reserve to quickly ease policy.
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