Pace of Equity Flows into Asia are Accelerating

Asian equities have been a market darling this year, but the pace of inflows have increased in recent weeks.

At around $534 mln, foreign inflows into Indonesia this month after nearly a quarter of the entire year's. The $222 mln inflow into Philippine shares already this month is nearly half of the year-to-date amount. Foreign investors have bought about 2.9 bln of Korean shares this month, which is nearly 30% of 2010 inflow. Thailand has taken in about $390 mln, which is a little more than half of the year-to-date figure. Taiwan is the most impressive, however, the $2 bln inflow this month is nearly 4-times greater than the inflow in the first 8-months of the year.

The South Korean won is the best performing regional currency this far this month, appreciating 3.25% against the dollar. The Indian rupee is second, rising 3% and the Philippine peso is third, with a 2.85% appreciation. The Taiwanese dollar is a laggard, gaining only 1.2% so far this month.

From the two largest economies in the region, Asian currencies are pulled in opposite directions. Following the BOJ intervention last week, the yen is off 1.7% against the dollar, while the Chinese yuan has advanced 1.4% for its strongest month is a couple of years.

Yet while some press reports talk about Japanese manipulating the fx market or seeking a weak yen (and the merits or demerits of a weak yen), the yen remains strong. Its 8.6% advance against the dollar this year makes its the strongest in the G10. It has also appreciated 26% over the past two years, more than twice the second strongest currency in this time period--the Australian dollar.