Asian bonds attract hefty inflows on US rate outlook, strong exports

(Reuters) - Foreign investors were net buyers of Asian bonds for the third consecutive month in July, spurred by strong regional export growth and expectations of a September rate cut by the U.S. Federal Reserve.

Overseas investors purchased a net $7.91 billion worth of bonds in Indonesia, India, Malaysia, South Korea and Thailand in July, data from regulatory authorities and bond market associations showed, following an about $3.03 billion worth of net accumulations in the previous month.

"The macroeconomic fundamentals in Asia remain positive. This should attract more inflows, especially with the U.S. Federal Reserve on track to cut rates soon," said Khoon Goh, head of Asia research at ANZ.

Reports signalled that regional economies including China, South Korea and Taiwan witnessed higher volumes of exports in July.

Indonesian bonds attracted a significant $3 billion in July, marking their third consecutive month of net buying, largely driven by foreign investments in Bank Indonesia Rupiah Securities (SRBI).

Demand for Indian bonds soared with a net investment of $2.68 billion, the highest figure in five months, following the inclusion in JP Morgan's emerging market debt index on June 28.

Indian bonds are expected to gain monthly inflows of about $2 billion until they reach a weight of around 10% in the JPMorgan's index by March 2025.

Cross-border investors also poured $1.75 billion and $749 million, respectively, into Malaysia and Thai bonds, while they pulled a net $270 million out of South Korean bonds.

Financial markets experienced increased volatility in early August following a weaker-than-expected U.S. payrolls report and disappointing manufacturing data, heightening concerns about an economic slowdown.

A weekly employment report last week, however, showed a drop in unemployment claims.

"Last week's better-than-expected U.S. jobless claims data helped assuage market concerns. We believe that the U.S. recession fears are overblown," ANZ's Goh said.

"We expect the mix of steady labour market statistics along with cooling inflation to keep the hopes of a U.S. soft landing alive, which will help portfolio inflows into Asia."

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sherry Jacob-Phillips)