Asian bonds in 2022 saw first foreign outflows in six years

© Reuters. An Indonesia Rupiah note is seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration

(Reuters) - Asia ex-China bonds recorded net foreign outflows for the first time in six years in 2022 as major central banks hiked their interest rates aggressively to tame inflationary pressures.

Overseas investors sold a net $4.89 billion worth of bonds in India, Indonesia, Malaysia, South Korea and Thailand, marking their first-year net outflow since 2016, data from regulatory and bond market associations showed.

Graphic: Yearly foreign investment flows - Asian bonds https://fingfx.thomsonreuters.com/gfx/mkt/byprlrmbepe/Yearly%20foreign%20investment%20flows-%20Asian%20bonds.jpg

Indonesian bonds witnessed outflows of $8.86 billion last year, the most since at least 2014, while Malaysian and Indian bonds had net sales worth $2.1 billion and $2.02 billion.

Graphic: Monthly foreign investment flows - Asian bonds https://fingfx.thomsonreuters.com/gfx/mkt/byprlrmqepe/Monthly%20foreign%20investment%20flows%20Asian%20bonds.jpg

However, the December outflows of $856 million from the regional bonds were much lesser than prior months, as the U.S. bond yields dropped sharply.

Foreigners purchased Indonesian and Thai bonds worth about $1.7 billion and $1.04 billion last month, respectively.

"Indonesian bonds would be expected to benefit most from the lower U.S. rates-lower U.S. dollar environment, while foreign investors are likely piling into Thailand bonds to pre-position for the full recovery in Chinese tourist arrivals," said Duncan Tan, a strategist at DBS Bank.

However, South Korea faced its biggest monthly foreign capital outflows in almost four years because of an increase in the amount of bonds that matured at the end of the year.

Analysts were more hopeful about inflows into the regional bonds in 2023, as concerns about inflation have fallen slightly.

U.S. consumer prices fell for the first time in more than 2 -1/2 years in December, which has lifted hopes that the Federal Reserve would likely slow the rate hikes this year.

"Conditions look favourable for a return of inflows in 2023," said Khoon Goh, head of Asia Research at ANZ, in a note.

"Fed is close to the end of their hiking cycle, the U.S. dollar has peaked, and importantly, China’s re-opening has fueled investor optimism towards the region."