Emerging Markets (EM) Asia ex-China: A Challenging End to 2024

Emerging Markets (EM) Asia, excluding China, faced a turbulent end to 2024, with net cumulative inflows into debt and equity markets closing at a negative $840 million, according to a report by Bank of America. This marks a significant shift from the year’s earlier trends, driven primarily by broad equity outflows and foreign selling in bonds from key markets like Korea and Malaysia.

Equity and Debt Inflows: A Diverging Story

The stark contrast between equity and debt inflows shaped the year-end figures:

• Equity Outflows Dominate:December alone recorded substantial equity outflows amounting to $19.92 billion, reflecting sustained foreign selling in markets such as Korea, Malaysia, and Indonesia. India saw significant foreign equity selling in the fourth quarter, further exacerbating the trend.

• Strong Debt Inflows:Conversely, cumulative inflows into debt markets reached $19.08 billion by year-end, up from $16.5 billion in November. This marks the strongest annual inflow into debt markets in over four years, demonstrating robust demand despite regional disparities.
  

Regional Equity and Debt Flows

A breakdown of regional activity reveals the uneven performance across EM Asia:

• Equity Markets: In December 2024, all Asian markets except India and Taiwan recorded equity outflows. Korea saw the largest outflows, followed by Malaysia and Indonesia, highlighting significant foreign selling pressure in these markets.

• Debt Markets: December brought mixed results for bond inflows. Markets in India, Indonesia, and Thailand attracted foreign investment, reflecting relative stability. Meanwhile, China, Korea, and Malaysia experienced notable bond outflows, underscoring the varied investor sentiment across the region.

  
  

Quarterly and Yearly Trends

The fourth quarter of 2024 represented a turning point, with cumulative inflows reversing dramatically. After peaking at $30 billion in October, inflows stagnated, culminating in the year-end deficit of $840 million. This shift was fueled by:

1. Broad-Based Equity Outflows: Persistent foreign selling across major markets throughout Q4.

2. Uneven Debt Inflows: While some markets gained traction, others struggled with outflows, leading to a mixed regional performance.

   
   

Key Takeaways

• Emerging Trends: The sharp divergence between equity and debt flows reflects investor caution in the region’s equity markets and a preference for debt as a safer investment avenue.

• Market-Specific Performance: The mixed results across equity and debt markets emphasize the importance of localized factors in shaping investment flows.

• Outlook for 2025: With debt inflows at their strongest levels since 2020, the region may see renewed foreign interest, but challenges persist in stabilizing equity markets.

  
  

Emerging Markets Asia ex-China continues to navigate a complex economic landscape, with divergent trends in equity and debt markets shaping the region’s financial dynamics. Investors and policymakers alike will need to monitor these shifts closely as they head into 2025.