Asian stocks outside of Japan may fall 17 percent in the short term as the Greek fiscal crisis prompts a drop in fund flows, BNP Paribas said.
The MSCI Asia excluding Japan Index may decline to around 410 ahead of a May 10 meeting of leaders from the euro region, BNP analysts Clive McDonnell and Ryan Tsai said in a report today, citing their Portfolio Flows model. They retained their year-end target of 570 for the gauge.
The MSCI index gained 0.7 percent to 496.72 as of 9:38 a.m. in Singapore, trimming its declines this week to 0.5 percent. The gauge slumped 2.5 percent in the past three days after Standard & Poor’s downgraded credit ratings for Greece, Spain and Portugal, fueling concern that widening deficits in Europe will derail the global economic recovery.
“The downgrade of Spanish and Portuguese sovereign debt has driven risk aversion higher,” the analysts wrote. The “Greek bailout could be delayed until May 10, so market uncertainty may continue.”
Even following the downgrades, emerging-market equity funds attracted $1.5 billion of net inflows in the week ended April 28, taking year-to-date gains to $15.2 billion, according to EPFR Global. Developed-market stock funds have lost $3 billion this year, the research company said in a statement yesterday.
BNP said about $6 billion may be withdrawn from funds investing in Asian shares next month, wiping out most of the estimated $7 billion of inflows this year, according to today’s report. This prediction is based on their forecasts for the U.S. Dollar Index, the Chicago Board Options Exchange Volatility Index, as well as real U.S. 10-year bond yields.
Given the potential withdrawal of global funds, South Korean technology companies and Indonesian consumer shares face “clear downside risks” in the short term after having rallied 31 percent and 17 percent, respectively, this year, the BNP Paribas analysts said.
Among regional markets, investors should also sell shares in India, historically among the most “vulnerable” to short-term foreign fund flows, and buy Malaysia, according to the brokerage.