Foreign Investors Pull $46 Bn From Emerging Market Equities In June; South Korea, Taiwan Hit Hardest

Foreign investors pulled a net $46.1 billion from emerging market equities in June, led by heavy selling in technology-focused markets such as South Korea and Taiwan, according to the latest data from the Institute of International Finance (IIF), highlighting growing caution toward risk assets despite continued appetite for emerging market debt.

According to a Reuters report citing the IIF's monthly portfolio flows data, overall portfolio flows to emerging markets remained negative for a second consecutive month, with net outflows of $17.8 billion in June.

Tech-Heavy Markets Bear The Brunt

The sharpest pressure came from equity markets, where foreign investors withdrew $30.5 billion from South Korean stocks, marking the country's largest monthly equity outflow in more than 25 years. Taiwan also witnessed equity outflows of $18.3 billion as investors trimmed exposure to semiconductor and technology stocks.

In contrast, emerging market debt remained resilient. Bond markets attracted $28.3 billion in foreign inflows during June, underscoring investors' preference for fixed-income assets over equities amid rising global uncertainty.

The IIF said the divergence reflected investors' willingness to lend to emerging markets through debt instruments while becoming increasingly cautious about broad equity exposure.

Macro Risks Keep Investors Cautious

The report warned that several macroeconomic risks could continue to weigh on emerging market equities. These include the possibility of a more hawkish U.S. Federal Reserve under its new Chair, Kevin Warsh, renewed volatility in crude oil prices, tighter U.S. dollar liquidity and higher funding costs for risk assets.

According to the IIF, higher global discount rates, uncertainty surrounding China's economic outlook, weaker confidence in corporate earnings and heightened sensitivity to technology and energy sectors also contributed to lower equity allocations.

Regional trends remained mixed. Emerging Asia recorded overall portfolio outflows of $27 billion during June, while Latin America, emerging Europe, and the Middle East and North Africa registered positive portfolio inflows.

China Sees Reversal In Flows

China also witnessed a reversal in foreign investor sentiment during the month. Overseas investors withdrew $14 billion from Chinese equities in June after investing $8.1 billion in May. China's debt market also recorded foreign outflows of $3.7 billion.

Despite continued weakness in equities, the IIF said overall capital flows to emerging markets remained supported during the first half of the year by strong demand for debt, with bond inflows more than offsetting persistent equity selling.

The report also highlighted robust sovereign fundraising activity. Emerging market sovereign issuance reached about $170 billion during the first half of the year, one of the strongest first-half fundraising periods in recent years, while net issuance exceeded $100 billion.

June also saw successful international bond offerings from Mexico, China, Latvia and Bahrain, suggesting global capital markets remained accessible to sovereign borrowers despite the challenging investment environment.