Foreign investors return to Asian equities in May, reversing prolonged outflows

(Reuters) -Asian equities are attracting foreign investments so far in May, marking a sharp reversal from outflows in the first four months of the year, as optimism over progress in trade talks has eased fears of U.S. tariffs fuelling a global economic slowdown.

Foreign investors have purchased approximately $6.22 billion worth of equities across India, Taiwan, South Korea, Thailand, Indonesia, Vietnam, and the Philippines so far this month through May 12, according to LSEG data.

Leading the rebound, Taiwan has attracted a net $4.43 billion in foreign inflows, ending a four-month streak of outflows, while Indian equities have also seen a substantial $1.68 billion in foreign investment.

Regional stock markets suffered around $54.33 billion in foreign outflows during the first four months of the year, the largest exodus for the period since at least 2010.

After a turbulent start to the year due to concern about U.S. President Donald Trump's trade policies, Asian equities have staged a strong recovery. The MSCI Asia-Pacific Index has surged 18% since April 7, driven by a 90-day halt on higher U.S. tariffs and progress in trade negotiations.

The U.S. and China agreed to temporarily reduce steep reciprocal tariffs and cooperate to prevent further disruption to the global economy, with the U.S. lowering levies on Chinese imports to 30% from 145% and China cutting duties to 10% from 125% for 90 days.

However, some analysts caution that uncertainty persists, as trade negotiations are expected to be prolonged and it remains too early to determine whether the tariff reductions will be permanent.

"News flow around trade deals has increased, stress measures have moderated from recent extremes, the dollar has weakened, and portfolio flows show tentative signs of re-risking," Goldman Sachs said in a note.

But it noted that the combination of subdued company earnings growth and complacent valuations indicates a potential for near-term market pullbacks.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Emelia Sithole-Matarise)