Singapore: Overseas buying of Asian equities in August was the highest in seven months, but analysts doubt such inflows could be sustained if the Sino-US trade dispute were to escalate, notwithstanding contagion from Argentina and other volatile emerging markets.

Foreign investors bought a net $2.42 billion of Asian stocks last month, their biggest monthly purchase since January, data from seven stock exchanges showed.

South Korea’s and Taiwan’s equity markets led the region with inflows of $1.65 billion and $1.08 billion respectively, while Indian equities also received some inflows.

Jingyi Pan, a Singapore-based market strategist at trading and investments provider IG said the reversal of the strong dollar trend in the latter half of August prompted inflows last month.

“That being said, investors are likely cautious going into September with emerging market contagion concerns yet to blow over, while uncertainty remains with regards to US-China trade tensions."

China and the United States have applied tariffs to $50 billion of each other’s goods and Trump could impose levies on $200 billion more of Chinese imports after a public comment period on the new tariffs ends on Thursday, although when the duties would actually take effect is not known.

An escalating trade war would be expected to affect the regional trade, and in turn Asian companies’ earnings prospects because they derive a major chunk of revenue from exports.

Economic meltdown in Argentina and Turkey and South Africa’s recent fall into recession also deters investors from emerging market countries, especially those with high external deficits.

The Indian rupee has hit a record low this week and the Indonesian rupiah touched a 20-year trough following the falls in Argentina’s peso and the Turkish lira.

“Effectively, we are in an environment where investors are very cautious towards any emerging markets running current account deficits. In Asia, India and Indonesia fit that bill," said Khoon Goh, ANZ’s Singapore-based head of Asia research.

On Wednesday Indonesian stocks lost nearly 5%, the biggest fall in almost two years and authorities intervened “decisively" to support the currency and bond markets.

Indonesian President Joko Widodo blamed “a barrage of external factors" for the rupiah’s fall to 20-year lows and said his priority was to increase investment and exports to contain the country’s current account deficit.

ANZ’s Goh expects the Indian and Indonesian markets to face more pressure this year, but is positive on South Korea and Taiwan because those countries run current account surpluses.

“Flows into Asia will still remain volatile for sometime," he said.