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Global
investments are starting to flow into Asian equities again after a sharp
sell-off as low valuations, weaker currencies and improving export markets lure
funds back.
Investors
who fled Asian share markets earlier this year are more hopeful that China will
avoid a hard landing as central banks in Europe and Japan maintain
accommodative monetary policies, supporting recovering global growth.
Emerging
markets are showing early signs of revival with foreign fund inflows picking up
over three weeks in October, led by Asia. Foreign investors also bought $2.7
billion of stocks in Asia, ex-China and Malaysia, in October compared with
sales of $23 billion over the prior four months, Credit Suisse data show.
"It's
more that people are reducing negative views, rather than going positive. But
it always starts like that," said Josh Crabb, head of Asian equities at
Old Mutual Global Investors in Hong Kong. "If it keeps going, people turn
from being less negative to turning bullish. But it won't be a straight
ride."
With
Chinese equities clocking the fastest growth among major Asian markets in
October, investors returned to Chinese exchange-traded funds (ETFs), which
accounted for most of the inflows over the past three weeks.
China
is still recovering from a bloodbath in its equities markets over the summer,
but the worst may be over. Economic growth likely bottomed in the third
quarter, John William Huia Woods, Asia-Pacific chief investment officer at Credit
Suisse, said in a report.
Investors
are also returning to South Korea and Taiwan, where valuations remain near 2008
lows, and to India, lured by its growth prospects.
"Interest
in emerging markets and Asia has picked up recently, likely due to Chinese
economic data showing some signs of stabilisation," said Andrew Jones,
portfolio manager for emerging market equities at PineBridge in New York.
But
foreign investors continued to sell shares in Indonesia and the Philippines in
October, according to Credit Suisse data. Malaysia also saw selling over the
five months through September.
Currency
weakness and falls in commodities prices are set to weigh on companies in Malaysia
and Indonesia in 2016.
An
anticipated rate hike by the Federal Reserve in December could renew pressure
on risk assets, but Asian export-reliant economies should benefit from a
stronger U.S. economy.
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