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Foreign investors offload Asian stocks as Sino-US trade war flares

They sold about US$4.5b of regional equities in the first six days of August

Bengaluru

FOREIGN investors dumped Asian equities in the first six days of August after two months of buying, as the United States ramped up pressure on China with a US$300 billion trade barrage last week.

Overseas investors sold about US$4.5 billion of regional equities during the period, data from stock exchanges in South Korea, Taiwan, India, Thailand, Philippines, Indonesia and Vietnam showed.

Sharp outflows from Asian markets point to increased worries that trade tensions between the world's two top economies could escalate, and regional economies and corporate earnings might deteriorate further.

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US President Donald Trump said last Thursday he would slap a 10 per cent tariff on the remaining US$300 billion of Chinese imports starting Sept 1, marking an end to a truce in the year-long trade war that was struck in June.

In response, China let its currency weaken 1.4 per cent on Monday, sending it past the key seven-per-dollar level for the first time in more than a decade, and then Washington labelled Beijing a currency manipulator.

MSCI Asia-ex-Japan index had fallen 6.4 per cent this month as at Tuesday's close, after shedding 1.7 per cent in July.

"Recent foreign outflows from Asian equities clearly suggest that investors are getting nervous on markets given escalating trade tensions," said Chetan Seth, a strategist for Nomura Securities in Singapore. "It might get harder for the United States and China to ease or soften these tensions given how events have unfolded over the last few days," he added.

Goldman Sachs said markets were pricing in a less than 15 per cent chance of a trade deal being agreed. It estimated 13 per cent and 8 per cent cumulative earnings downside for MSCI China and MSCI Asia-ex-Japan in 2019-2020 under a "no deal" scenario.

Taiwan and India saw the biggest outflows in Asia, with net selling of US$1.8 billion and US$1.1 billion respectively. South Korea also witnessed outflows of US$919 million.

Taiwan and South Korean companies are more exposed to the Sino-US trade tussle as they have extensive ties with tech firms in China and are part of their supply chains.

Indian shares were undermined last month after the federal budget raised import tariffs on many items, hiked taxes on the rich and proposed changes in shareholding norms. REUTERS