Jan 20 (Reuters) - Asian bonds saw robust inflows in December, driven by an improving growth outlook in the region and diversification by foreign investors away from richly valued equities.

Foreigners bought bonds worth a net $9.68 billion in South Korea, Thailand, Malaysia, India and Indonesia in December, slightly lower than the $10.86 billion in net purchases recorded in November, data from local regulatory authorities and bond market associations showed.

Including these latest inflows, bonds in the region attracted about $46.85 billion of foreign investment in 2025, the highest since clocking $64.02 billion in net purchases in 2021.

Strong bond inflows almost made up for foreign outflows of around $49.4 billion from equity markets in India, Taiwan, South Korea, Thailand, Indonesia, Vietnam and the Philippines last year, according to LSEG data.

South Korean bonds led the gains, drawing $5.48 billion in December, adding to $11.08 billion the month prior, as investors positioned ahead of the country’s inclusion in the FTSE Russell World Government Bond Index (WGBI) from April 2026.

Manufacturing PMI readings showed Asia’s factory hubs ended 2025 on firmer footing, with activity returning to expansion in several key economies as export orders improved.

Malaysian, Indonesian and Indian bonds also recorded net foreign inflows of $2.35 billion, $2.1 billion and $79 million, respectively, in December.

Thai bonds, however, saw a net $324 million outflow, snapping a three-month streak of foreign inflows.

Some analysts expect inflationary pressures across the region to ease further, giving central banks greater scope for accommodative policy, supporting regional bonds.

"In contrast to concerns around fiscal and current account deficits in select developed economies, most Asia Pacific countries maintain prudent fiscal positions and healthy current account surpluses," said Omar Slim, co-head of Asia fixed income at PineBridge Investments.

"Asia remains resilient amid shifting trade dynamics and continues to offer compelling opportunities for selective investors."

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Ronojoy Mazumdar)

((gaurav.dogra@thomsonreuters.com; +91(080) 67496197;))