Foreign investors pull $46B from emerging market stocks in June

South Korea bled $18.3 billion and Taiwan $8 billion in June, according to Institute of International Finance data published Thursday, as foreign investors trimmed crowded AI chip bets.reuters+1
The two markets now command roughly half the MSCI Emerging Markets Index weight, overtaking China, which fell below 19% by late June.msci+1
First-half outflows from Asian equities hit $137 billion, the fastest pace in at least 16 years, according to Reuters, though some strategists see profit-taking rather than fundamental weakness.reuters+1

Foreign investors pulled a net $46.1 billion from emerging market equities in June, according to data from the Institute of International Finance published Thursday, with South Korea and Taiwan at the center of the retreat as a tech selloff and Middle East tensions rattled confidence in the two markets that have come to dominate the developing-world stock universe.reuters+2

AI Winners Bear the Brunt

South Korea and Taiwan — home to the semiconductor and AI-hardware supply chains that have powered a rally in emerging market stocks — absorbed the heaviest selling. South Korea bled $18.3 billion in net foreign outflows during the month, while Taiwan saw $8 billion exit, according to the IIF figures. The June withdrawals marked the second consecutive month of overall portfolio outflows from emerging markets, following $26.6 billion in net outflows recorded in May.kitco+3

The selloff accelerated despite — or perhaps because of — a strong first half for both markets. Taiwan has overtaken China as the largest weight in the MSCI Emerging Markets Index, holding 24.8% as of late April, driven by AI-fueled demand for semiconductors. South Korea's weight climbed to nearly 25% by late June, also surpassing China, which fell below 19%. Together the two markets now command roughly half the benchmark index, a shift that has left foreign portfolios heavily exposed to a narrow set of chipmakers.biz.chosun+2

Record Pace of Selling

The June figures cap a historic first half. Reuters reported that overseas investors sold a net $137.36 billion from shares across South Korea, Taiwan, India, Indonesia, Thailand, Vietnam, and the Philippines in the first six months of 2026 — the fastest pace in LSEG data going back to 2010. South Korea accounted for $70.8 billion and Taiwan $29.6 billion of those cumulative outflows.reuters+1

Analysts attributed the selling not to bearish sentiment but to forced position trimming as AI-linked stocks became "crowded trades." A disappointing earnings report from Broadcom in early June added to the pressure on the sector, while escalating Middle East tensions weighed on broader risk appetite before easing later in the month following a U.S.-Iran peace deal.reuters+2

Outlook Remains Divided

The MSCI EM equity gauge fell 1.4% in June, underperforming U.S. small caps. Yet some strategists remain constructive on the asset class heading into the second half, noting that the outflows reflect profit-taking rather than a fundamental deterioration. Capital Economics observed that outflow pressures eased in the latter part of June after geopolitical risks subsided. Goldman Sachs, meanwhile, has flagged a potential dollar weakening in the second half of 2026 that could support emerging market assets.navellier+2

Sources (27)