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Bond investors remain wary of EM local currency exposure, says HSBC

Emerging market local currency bond funds experienced outflows for the fifth consecutive week, HSBC states in a report.

The EM-dedicated local currency bond funds had a net outflow of $21 million last week, according to a report by the bank’s EM research. Although this is an improvement on the previous week's $148 million outflow, it is clear investors remain cautious about taking on local currency exposure. The four-week moving average of total flows in EM local currency bond funds is now -$589 million, compared to the average monthly flow of $655 million during the past year to date.

Emerging-market bond flows
 Source: HSBC

But flows into EM hard currency bond markets have tentatively recovered from September’s mass outflows, the report shows. last week's net flow into EM hard currency bond funds, turned positive for the first time in five weeks, totaling $92 million.  The previous week's net flow was $221 million.

 Global bond market flow
 Source: HSBC


Foreign investors have gradually added to their holdings in Indonesian government bonds following the Bank of Indonesia’s 25 basis-point rate cut on 11 October. Since 10 October their market share has increased to 31.4% from 30.3% on 10 October.


Offshore participants also bought $86 million of Thailand government bonds on 20 October after the central bank governor signaled the possibility of an inter-meeting rate cut if the ongoing floods are found to have a severe impact on the economy.

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