Foreigners retreat from Asian equities on doubt over tech valuations

3:25 am Wednesday, September 04th, 2024

By Gaurav Dogra

(Reuters) – Overseas investors aggressively withdrew from Asian tech stocks in August, as they turned pricey after their recent rally and doubts emerged about the profitability of AI investments.

According to LSEG data, foreigners sold a net $3.8 billion worth of regional shares in South Korea, India, Taiwan, Indonesia, Vietnam, Thailand, and the Philippines last month, after two months of net purchases in a row.

“The month (August) has seen the outperforming tech sector trailing behind the rest in terms of performance, seemingly with some rotation in place towards the laggards as market participants digest lofty tech valuation and look towards upcoming Fed’s rate easing,” Yeap Jun Rong, a market strategist at IG, said.

Taiwanese and South Korean equities, which include many companies that manufacture chips for AI applications, experienced outflows of $4.2 billion and $2.1 billion respectively in the last month.

Jason Lui, head of APAC equity and derivative strategy at BNP Paribas, attributed the foreign outflows in Taiwan and Korea to a reassessment of sentiment on semiconductors and AI.

“Global investors are starting to question the profitability and sustainability of large capital spending by leading tech companies in the U.S.,” he said.

Indian markets managed a net inflow of $873 million. Most of the buying was driven by new issues in the primary market, however, and foreigners sold stocks traded on exchanges worth a net $662 million worth.

“Foreigners have been reducing exposure to India because they feel it’s expensive,” said Herald van der Linde, head of equity strategy, Asia Pacific at HSBC.

Indian stocks trade at a 12-month price-to-earnings ratio of about 24.06, the highest among major global markets, as per LSEG data.

Foreigners, meanwhile, pulled out of Vietnam stocks for a seventh month running, with about $151 million in net sales last month. They also shed Thai equities of $175 million.

Bucking the trend, Indonesian and Philippine equities attracted about $1.85 billion and $144 million worth of foreign inflows respectively last month.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Barbara Lewis)