Global investors are on track to withdraw a record amount from Asian emerging-market equities excluding China, as surging oil prices due to the Middle East conflict clouds the region's outlook.
Foreigners have sold about $52 billion of Asian stocks since the war in Iran began, putting the region on track for its biggest monthly outflow in Bloomberg-compiled data going back to 2009. Oil import-reliant markets such as Taiwan, South Korea and India led the selling.
Elevated oil prices are weighing on the economies of net energy importers, which are predominantly located in Asia. This month's equity outflows have surpassed the pandemic-driven exodus of March 2020, and are more than double the losses seen in June 2022 in the wake of the Ukraine war.
“We are likely seeing some short term rotation into markets less exposed to Middle East energy risk, and this could continue until there is greater clarity on the Iran situation,” said Gary Tan, a fund manager at Allspring Global Investments. “Asia accounts for about 80% of crude demand flowing through the Strait of Hormuz, so any disruption there has a disproportionate impact on the region's inflation and growth outlook versus other regions.”
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Asian shares have come under pressure this month, underperforming their US peers which have remained relatively resilient thanks to the country's status as a net energy exporter. A relatively stronger dollar and profit-taking in chip stocks have added to the strain.
Morgan Stanley strategists last week recommended investors sell into Asia's stock rally, citing the region's vulnerability to ongoing interruption in oil.
Investors remain cautious about US-Iran ceasefire prospects. While the US insisted talks were ongoing, Iran has rejected the outreach by President Donald Trump.
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