South Korean, Malaysian bonds get massive foreign inflows in March

Foreigners continued to purchase Asian bonds in March, but the inflows were mainly focused on South Korean bonds, as investors searched for safety among emerging-market bonds.

Overseas investors bought a net $7.4 billion worth of Asian bonds in March, the 10th consecutive inflow, data from regulatory authorities and bond market associations in South Korea, Malaysia, India, Indonesia and Thailand showed.

South Korean bonds saw a record inflow of $8.1 billion last month, the data showed.

"South Korean bonds tend to see outsized inflows during times of market volatility, due to foreign investors rebalancing from higher-beta Asian bonds into the safer Korean bonds," said Duncan Tan, a strategist at DBS Bank.

Despite a rise in U.S bond yields this year, South Korean bonds have been getting heavy inflows, bolstered by the country's stronger current account position, lower fiscal deficits, and better yields compared with other countries with same sovereign ratings.

Meanwhile, Malaysian bonds drew an inflow of $1.4 billion last month, helped by their higher yields and the strong economic growth expected in the second quarter.

According to a Reuters poll, Malaysia's economy is expected to grow 15.8% in the second quarter, the second highest in the region, behind India's 27%.

However, higher U.S. yields and a recent surge in COVID-19 infections in the region crimped money flows into other bond markets. Indonesia and Indian bonds saw outflows of $1.4 billion and $885 million respectively. Thai bonds had meagre inflows of $173 million.

DBS's Tan said he is not optimistic on the outlook for foreign inflows in coming months.

"External conditions would not be conducive as we expect US rates to continue to rise, and the US dollar to stay supported. Within the region, China’s sequential growth momentum seems to be slowing and several countries are also experiencing new infection waves," he said.