EM Funds See Fifth Week Of Inflows As Chip Rally Shows Signs Of Fatigue

Global emerging-market (GEM) funds extended their recovery for a fifth consecutive week, reversing nearly 90% of the outflows recorded between May and July, while investors began taking profits from semiconductor funds after months of strong inflows driven by the artificial intelligence (AI) boom, according to Elara Securities.

The brokerage said GEM funds attracted cumulative inflows of $11.8 billion over the past five weeks, recovering most of the roughly $13 billion withdrawn during the May-July period.

US-focused funds also posted inflows for a third straight week, led primarily by direct country allocations, followed by global-mandated funds.

Semiconductor Trade Shows Signs Of Cooling

After attracting massive inflows during June and July, semiconductor-focused funds are now witnessing early signs of profit-taking.

Elara said investors poured nearly $45 billion into semiconductor funds over the two-month period as the semiconductor index rallied sharply. However, with the index reaching its peak, the subsequent two-week rebound has coincided with about $5 billion of redemptions, indicating that investors are beginning to lock in gains.

The brokerage noted that nearly 80% of all inflows into semiconductor funds since the AI-driven rally began in April 2025 were concentrated in June and July, underscoring how fresh capital fuelled the final phase of the rally.

The shift is particularly visible in Taiwan, where domestic funds recorded their largest weekly outflow since September 2025 at around $1 billion, even as foreign investors continued to remain net buyers. South Korea also continued to receive positive foreign flows, although the pace has moderated.

India Outflows Moderate But Selling Continues

India has also witnessed some moderation in foreign selling, although overall flows remain negative.

According to Elara, the slowdown has largely been supported by inflows into India-focused exchange-traded funds (ETFs), while long-only funds have continued to reduce exposure.

Selling by long-only investors has persisted since July 2025 and accelerated in 2026. Around 65% of the inflows received by India-focused long-only funds during 2023-24 have now been withdrawn.

The brokerage added that US-domiciled ETFs are providing some support, while investors from Japan and Luxembourg continue to account for the largest outflows, having already withdrawn nearly 50-60% of the capital invested during 2022-24.

Although the pace of redemptions has eased, Elara said a sustained reversal in foreign flows into India has yet to emerge.

While investors rotated out of semiconductor funds, precious metals continued to attract fresh capital.

Gold funds recorded inflows for the sixth consecutive week, with weekly investments rising to a six-month high of $5.8 billion. Silver funds also witnessed a similar acceleration in inflows, reflecting continued demand for safe-haven assets amid global market uncertainty.