Asian equities see largest monthly foreign inflow in 15 months

Asian equities saw a robust return of foreign investment in May, with net inflows of $10.65 billion across several key markets, reversing four months of outflows after concerns over U.S. tariffs eased. Taiwan and India led the inflows, while Goldman Sachs revised its earnings growth forecast for MSCI Asia Pacific ex-Japan upwards to 9% for 2025 and 2026, citing stronger macro growth and AI-related investments, contributing to the region's outperformance compared to global indices year-to-date.

Analysis

Asian equities experienced a significant resurgence in foreign investment during May, attracting approximately $10.65 billion in net inflows across key regional markets, marking the largest monthly net purchase since February 2024 and a sharp reversal from four consecutive months of net selling. This renewed investor interest was primarily attributed to eased concerns regarding an immediate economic impact from U.S. tariffs, following a 90-day pause announced for most countries after initial concerns in early April. Underscoring this positive sentiment, Goldman Sachs has upwardly revised its earnings growth forecast for the MSCI Asia Pacific ex-Japan (MXAPJ) to 9% for both 2025 and 2026, an increase of 2 and 1 percentage points respectively, citing stronger macroeconomic growth in China, U.S.-exposed markets, and substantial AI-related investments from Saudi Arabia into U.S. firms expected to benefit Taiwan and Korea, though a weaker dollar could present a partial offset. Taiwan led the regional inflows with $7.28 billion, its largest monthly net purchase since November 2023, followed by India with $2.34 billion, its largest since September 2024. South Korea, Indonesia, and the Philippines also recorded net foreign inflows of $885 million, $338 million, and $290 million respectively, while Thai stocks saw net selling of $491 million. Year-to-date, the MSCI Asia-Pacific Index has risen approximately 8.8%, outperforming both the MSCI World Index (+5.4%) and the S&P 500 Index (+0.98%), despite heightened market volatility earlier in the year linked to U.S. trade policy concerns.

Key Decisions for Investors

• Investors should consider the renewed foreign appetite for Asian equities, particularly in markets like Taiwan and India which are showing strong inflow momentum and benefiting from positive earnings revisions.
• It is crucial to monitor developments related to U.S. trade policies beyond the current 90-day tariff pause and assess the potential impact of U.S. dollar fluctuations on regional earnings.
• A selective approach within Asia is advised, focusing on markets and sectors, such as Taiwan and South Korea, poised to benefit from structural themes like AI investment, while noting divergent performance as seen with outflows from Thailand.