Foreign selling in Asian equities rises as bond yields climb

Foreign investors accelerated their exodus from Asian equities throughout May, shedding billions as a pronounced "risk-off" sentiment gripped global markets. This sharp divestment stems primarily from mounting concerns over persistent, war-driven inflation, which elevates operational costs, and the concurrent surge in global bond yields, pushing borrowing costs higher for corporations across the region. This dynamic creates a challenging environment for corporate margins, making Asian stocks less attractive to international capital seeking safer, higher-yielding alternatives. The current outflow signifies a broader recalibration of capital away from perceived riskier assets, notably emerging markets, towards the perceived safety and superior returns of developed market debt, particularly U.S. Treasuries. The "higher for longer" narrative from central banks, aimed at taming stubborn inflation exacerbated by geopolitical conflicts and supply chain disruptions, is driving up benchmark interest rates and consequently bond yields. This phenomenon not only tightens financial conditions globally but also impacts "carry trade" strategies, making it expensive to borrow in low-yield currencies and invest in high-yield ones. For Asian economies, sustained foreign selling can weaken local currencies, fuel imported inflation, and hinder corporate expansion, thereby dampening economic growth prospects and further eroding investor confidence.