Foreign investors fled technology-heavy stock markets in South Korea and Taiwan at a historic pace last month, driving net emerging market equity outflows to $46.1 billion in June, according to new data from a banking industry trade group. The losses contributed to a second consecutive month of overall portfolio declines for developing economies worldwide.
A monthly report released Friday by the Institute of International Finance revealed that foreign investors withdrew $30.5 billion from South Korean stocks alone — the steepest outflows recorded in more than 25 years. Taiwan’s equity markets shed an additional $18.3 billion over the same period.
Despite the dramatic stock sell-off, the picture for bonds told a very different story. Emerging market debt attracted $28.3 billion in fresh investment during June, though overall portfolio flows still ended the month with a net loss of $17.8 billion.
IIF chief economist Jonathan Fortun addressed the divide in the report, writing: “Investors are still willing to lend to EM. They are less willing to add broad equity risk.”
The report also flagged potential headwinds ahead, warning that a more hawkish U.S. Federal Reserve under new chairman Kevin Warsh, combined with renewed swings in oil prices, could tighten the availability of dollars and raise the bar for emerging market investment.
Fortun pointed to several factors behind the equity pullback, including higher global discount rates, uncertainty surrounding China, weakening confidence in corporate earnings, and investor sensitivity to positions in technology and energy sectors.
The data revealed stark differences across regions. Emerging Asia as a whole recorded $27 billion in total portfolio outflows during June, while flows into Latin America, emerging Europe, and the Middle East and North Africa all remained positive.
China was a notable drag within the figures, with equity outflows reaching $14 billion — a sharp reversal from May, when the country saw $8.1 billion flow in. Foreign investors also pulled $3.7 billion out of Chinese debt instruments.
Fortun summarized the first half of the year bluntly: “The first half message is clear. EM has still attracted capital in aggregate, but only because debt inflows have more than offset persistent equity liquidation.”
Sovereign bond issuance for the first half of the year reached approximately $170 billion, the strongest opening half in recent memory, with net issuance topping $100 billion for the year. June saw international bond deals from Mexico, China, Latvia, and Bahrain, which the report said confirmed that access to global capital markets remained open across different regions.
