Foreign investors continued selling emerging market bonds and currencies on Tuesday, extending the rout that has plagued the market in recent weeks. One strategist told CNBC there may be plenty of more selling to come.
According to Matt Huang, Strategist at Macquarie Asian Markets in Singapore, foreign investors have built up substantial positions in Asian emerging markets since 2008, and unwinding those could pose the biggest risks for these countries.
"Most of these are real money investors and if you think about how this actually happened, when we started back in 2008, you had the Lehman crisis. Everybody at that time was looking at the U.S. and at Europe as being the trouble areas, and money started coming back to Asia," Huang said.
"Those positions have built over two and a half years now, and they're quite substantial. So, it might be a little bit over-positioned right now."
Huang said the bond markets of South Korea, Indonesia and Malaysia had the largest foreign influence and so faced greater risks. He said the selloff in Indonesian bonds had been especially "impressive" with foreign investors selling about 40 percent of their investments in Indonesian bonds so far this year.
"The week-to-week flow data shows that about a quarter of what (foreign investors) put in this year was taken out just last week," Huang added. "So you build a position over a year, take a quarter of it out in a week. That's what we saw last week."
Huang said the selling in emerging market bonds hadn't reached panic levels yet and had been orderly, partly because of government support. On Monday, Reuters reported that Indonesia's central bank had bought $68.7 million in government bonds to stabilize bond prices.
Investors grew more worried on Tuesday, after shares of Belgium's largest bank Dexia plummeted on concerns about its exposure to Greece, and the French and Belgian governments said they were ready to act.
According to Huang, a resolution to Dexia will be key to whether the selling in emerging market bonds accelerates or slows down.