July foreign inflows fell to a four-month low in major Asian bond markets as investors turned choosy in the economic fallout from the Middle East conflict that drove up oil prices.
Foreigners bought a net $2.03 billion worth of local bonds in India, Indonesia, Malaysia, South Korea and Thailand in their smallest monthly net purchase since March, data from regulators and bond market associations showed.
The slowdown came despite continued foreign demand for emerging-market debt globally.
Investors put $26.7 billion into EM debt in July, according to the Institute of International Finance, drawn by high yields, improving fundamentals and diversification from developed markets. EM equities, by contrast, saw outflows of $7.8 billion.
Asia has been less attractive as many economies are vulnerable to higher energy costs.
The five-month Iran war has disrupted shipping through the Strait of Hormuz, a key route for Gulf energy exports, boosting costs for importers and fuelling growth concerns.
In Asia, China's factory activity contracted in July, an official survey by the National Bureau of Statistics (NBS) showed. India's manufacturing growth also slowed to its weakest pace in nearly five years, a private survey showed.
Indian bonds, however, drew $3.04 billion in foreign inflows, for a second consecutive monthly gain after New Delhi scrapped capital gains tax in early June on income from interest or sales of government securities for overseas investors.
South Korean bonds attracted roughly $600 million, a fourth consecutive monthly foreign inflow amid their inclusion in the FTSE Russell's benchmark bond index.
Inflows into Indonesian bonds fell to a four-month low of $40 million after central bank Governor Perry Warjiyo stepped down unexpectedly, raising concerns about the institution's independence.
"The high level of yields offered by Indonesian debt instruments at this stage appears sufficient to prevent sizeable outflows despite the uncertainty created by Warjiyo's resignation," said Khoon Goh, head of Asia research at ANZ.
Malaysian bonds saw $1.38 billion in outflows as investors kept cautious ahead of state elections, while foreign investors sold $268 million in Thai debt securities amid worries over slowing economic growth.
