EM equities see $46 billion exodus in June as South Korea, Taiwan tech selloff rattles investors

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 turned negative for a second consecutive month, with net outflows of $17.8 billion in June.

The biggest pressure came from equity markets. Foreign investors withdrew $30.5 billion from South Korean stocks, marking the largest monthly outflow in more than 25 years, while Taiwan recorded equity outflows of $18.3 billion.


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 attributed the divergence to investors remaining comfortable with lending to emerging markets through debt instruments while becoming increasingly cautious about taking broad equity exposure.

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

The IIF's data also pointed to higher global discount rates, uncertainty surrounding China's economic outlook, weaker confidence in corporate earnings, and heightened sensitivity to the technology and energy sectors as key factors behind the reduction in equity allocations.

Regional trends showed significant divergence. Emerging Asia posted $27 billion in overall portfolio outflows during June, while Latin America, emerging Europe, and the Middle East and North Africa all registered positive portfolio flows.

China also experienced a reversal in investor sentiment. Foreign investors pulled $14 billion from Chinese equities in June, compared with an inflow of $8.1 billion in May. China's debt market also recorded $3.7 billion in foreign outflows during the month.

Despite the weakness in equities, the IIF said overall capital flows to emerging markets during the first half of the year remained supported by strong demand for debt. The debt inflows more than compensated for persistent equity selling, allowing emerging markets to continue attracting capital on an aggregate basis.

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

June saw successful international bond offerings from Mexico, China, Latvia and Bahrain, indicating that global capital markets remained accessible for sovereign borrowers across multiple regions despite the more challenging investment environment, according to Reuters.