Foreign capital is pulling back from the Chinese mainland as the market anticipates an early stimulus exit by the Fed since mid-May.

China has seen a monthly net capital outflow in 16 of the last 18 weeks, according to fund flow data provider EPER.

EPER figures showed foreign capital registered a net outflow of $834million in the first five trading days in June, the largest since January, 2008.

For the week ended last Wednesday, mainland and Hong Kong markets recorded outflows of US$170 million and US$22 million respectively.

Capital outflow is not only happening here in China, but in the entire Asia Pacific region, said Pu Yonghao, regional chief investment officer for Asia Pacific at UBS Wealth Management.

The outflow is bad news for the country’s stock market in the short term, Pu said, arguing that, however, rising capital costs which can help optimize capital allocation will benefit the market over the long run.

The stronger US Dollar is yet another bad news for the emerging market, warned Pu, who suggested investors adjust their expectations on the currency.

The U.S. Dollar gained 5.7% in the first five months and dipped slightly in June on a rising euro.

Stronger U.S. dollar will lead to rises in borrowing costs in Asian markets (companies and families), which borrowed a large number of U.S. dollar bonds when the currency was weaker, said Pu.

“It (rising borrowing costs) will be like a money squeeze,” he said.

The U.S. will return as a more attractive market to invest in as the world’s largest economy recovers growing momentum, Pu noted.

The U.S. added higher-than-expected 195,000 new jobs in June while homes started rose 6.8% from a month earlier in May, the Commerce Department reported.