[SINGAPORE] Overseas buying of emerging Asian equities and bonds surged to the highest level in five years in March, as a weaker dollar and hopes major economies will make a deal on averting global currency wars soothed investors.

Inflows into Asia ex-China stocks and local currency debt jumped to US$22 billion during the month, about two-thirds into the shares and the rest into debt, according to data from Deutsche Bank's Asia macro-strategy team. It said February had net outflows of US$3.9 billion.

The positive trend continued in the week ended April 6, with Asian emerging markets broadly seeing inflows, according to securities firm Jefferies.

Speculation that there was a secret Group of 20 deal to refrain from competitive currency devaluations, combined with a more dovish US Federal Reserve, contributed to the dollar index sliding to a 7-1/2-month low this week.

Also, markets are finally taking to heart repeated promises by Chinese authorities to refrain from a devaluation of the yuan.

That's helping lure back foreign investors, who fled Asia, and emerging markets in general, in 2015 and early this year, put off in part by lower returns due to weaker local currencies.

"Clearly the Fed's tone was supportive for emerging market currencies, but you've also had other countries, notably the Chinese, make clear that they're not interested in pursuing a competitive devaluation," said Robert Davis, senior portfolio manager at NN Investment Partners in Brussels.

The dollar index, which tracks the US currency against a basket of six major currencies, has weakened about 4.5 per cent since the start of March.

A RISK PROXY

In emerging Asia, the Korean won, Malaysian ringgit and Taiwan dollar have strengthened the most against the dollar in that time. The former two have gained about 8 per cent, and the Taiwan dollar about 4 per cent.

Foreign investors plowed US$5.1 billion into equities in Taiwan and US$4.6 billion into equities and debt in Malaysia, according to the Deutsche Bank report.

The MSCI emerging Asia index has risen roughly 15 per cent since a January trough, and nearly 10 per cent just since the start of March. "Without a doubt, the US dollar tends to act as a bit of a risk proxy," said Josh Crabb, head of Asian equities at Old Mutual Global Investors in Hong Kong. "But it's a combination of the fact that you've got a very under-owned asset class that's got a bit cheap and the Americans backing off a bit over policy," he added. "And you've got some stability in the yuan now."

Some improvement in Chinese economic data has also soothed investors, said Herald van der Linde, head of Asia equity strategy at HSBC in Hong Kong. "The dollar and central bank actions, and growth outlook being better in Asia, in particular with regards to China, have shifted the balance in favour of Asia over the last few weeks," he said.

REUTERS