By Gaurav Dogra

(Reuters) – Emerging Asian bonds ex China attracted the largest monthly foreign inflows in more than four months, in December. This was despite concerns about the Federal Reserve tightening its monetary policy and businesses showing higher productivity.

International investors bought a net of $4.72 Billion in South Korean, Thai and Indian bonds as well as Malaysian bonds. It was their largest net buy since August according to data from bond market associations and regulatory agencies.

Graphic: Monthly foreign investment flows: Asian bonds, https://fingfx.thomsonreuters.com/gfx/mkt/egpbkjjkgvq/Monthly%20foreign%20investment%20flows%20Asian%20bonds.jpg The five countries’ bond markets attracted overseas capital of $64.02 billion last year, the largest since at least 2013. South Korean bonds received the largest inflows at $57.81 trillion.

Duncan Tan, DBS Bank strategist, stated that Korean bonds are likely to be in high demand as foreign investors can buy low-beta bonds, hedge their currency exposure and still enjoy a 20-30 bps increase over US Treasury.

Cross-border outflows were experienced by Indian and Indonesian bonds last year, respectively, at $5.7 billion and $1.4 trillion.

Graphic: Yearly foreign investment flows: Asian bonds, https://fingfx.thomsonreuters.com/gfx/mkt/klpykqqkypg/Yearly%20foreign%20investment%20flows-%20Asian%20bonds.jpg Foreign holdings of Asian emerging market bonds as a percentage of G4 central bank balance sheet sizes had fallen from 1.5% to 1.1% around the onset of the pandemic and have stayed at 1.1% ever since, DBS bank said in a report.

Tan from DBS Bank stated that EM local currencies bonds performed the lowest in USD returns terms during 2021.

Graphic: Asian currencies 2021 performance against the USD, https://fingfx.thomsonreuters.com/gfx/mkt/byprjmxazpe/Asian%20currencies%202021%20performance%20against%20the%20USD.jpg Meanwhile, Malaysian and Thai bonds saw inflows of over $1 billion each last month, while South Korean bonds received $5.56 billion on positive growth expectations.

However, analysts believe the expectations of more aggressive U.S. Federal Reserve tightening of policy would have an impact on inflows of Asian bonds to the United States in the first three months of the year.

Goldman Sachs (NYSE :), J.P. Morgan, are all examples of investment banks. Deutsche Bank (DE:) Expect the Fed to increase interest rates by four times in 2018. Graphic: Foreign investors’ holdings in Asian bonds, https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrkkrwpm/Foreign%20investors%20holdings%20in%20Asian%20bonds.jpg