Elevated US yields weighed on sentiment, slowing foreign inflows into US equity funds

Overview

The report uses high-frequency fund and retail trading data to examine changes in foreign investors' allocations to US and emerging market assets. Its central conclusion is that elevated US yields weighed on sentiment, slowing foreign inflows into US equity funds. However, capital did not withdraw across the board: US bond funds returned to net inflows, emerging market ETF inflows increased slightly, and related purchases by South Korean and Taiwanese investors also rose.

Core views

Foreign inflows into US-focused funds totaled USD2.2bn from August 14 to 20, down from USD3.2bn in the previous week. The report links the slowdown in inflows to the pressure that elevated US yields exerted on investor sentiment. The composition of flows remained heavily tilted toward equities: US equity funds attracted USD1.9bn during the period, while bond funds received only USD247mn. As of the report's August cut-off date, US-focused funds had received cumulative foreign portfolio inflows of USD9.4bn for the month, of which USD9.1bn went into equity funds, indicating that US equities remained the principal destination for cross-border allocations during the month. Inflows into US equity funds lost momentum relative to the previous period. From August 14 to 20, US-focused equity ETFs and mutual funds attracted USD1.9bn, down from USD3.3bn in the previous week. Month-to-date inflows in August totaled USD9.1bn, also below the USD12.0bn recorded in July 2026. The report therefore emphasizes not a shift to net outflows, but rather a slowdown in the pace at which foreign investors increased their allocations to US equities while US yields remained elevated. US bond flows improved. From August 14 to 20, US-focused bond ETFs and mutual funds attracted USD247mn, compared with a net outflow of USD86mn in the previous week, indicating a weekly reversal from outflows to inflows. Month-to-date in August, US-focused bond funds recorded cumulative inflows of USD346mn. This remained far below the scale of equity fund inflows and therefore did not alter the overall structure of cross-border inflows into US assets, which remained dominated by equities. Weekly performance for emerging market funds was slightly stronger than in the previous week. From August 14 to 20, emerging market-focused ETFs attracted USD2.3bn, up slightly from USD2.2bn in the previous week, comprising USD2.2bn of inflows into equity funds and USD147mn into bond funds. Month-to-date in August, emerging market-focused funds recorded cumulative inflows of USD6.7bn, below the USD8.2bn recorded in July 2026. Thus, weekly inflows recovered in the short term, but the cumulative monthly pace remained weaker than in July and was likewise driven mainly by equity flows. South Korean retail investors' purchases of US assets rebounded significantly. From August 15 to 21, they made net purchases of USD1.3bn in US securities, up from USD534mn in the previous week. This included net purchases of USD987mn in US equities and USD275mn in US bonds. Despite the acceleration in weekly purchases, cumulative net purchases month-to-date in August totaled USD2.9bn, still below the USD5.5bn recorded in July 2026, indicating that the recent improvement had not yet offset the broader slowdown in the monthly allocation pace. Taiwanese investors' flows into US dollar bonds also strengthened. From August 14 to 20, US dollar bond ETFs listed on the Taiwan Stock Exchange attracted USD304mn, up from USD179mn in the previous week. Month-to-date in August, Taiwanese investors made net purchases of USD315mn in US dollar-denominated bonds, compared with net sales of USD1.5bn in July 2026, indicating that monthly flows had shifted from net selling to modest net buying. Overall, the various channels diverged: US equity funds continued to record net inflows but at a slower pace, US bond funds returned to inflows, weekly inflows into emerging market ETFs increased slightly, and weekly purchases by South Korean and Taiwanese investors strengthened. Through these high-frequency changes, the report shows that pressure from US yields primarily weakened the marginal momentum of inflows into US equities rather than triggering a synchronized withdrawal of all cross-border securities investment.

Analysis framework

The report first aggregates one week of foreign flows into US-focused equity and bond funds, then compares them with the previous week, August month-to-date, and July 2026. It subsequently applies the same approach to examine changes in emerging market ETFs, South Korean retail investors' purchases of US assets, and Taiwanese US dollar bond ETFs. Its proxy methodology assumes that US-focused funds listed on non-US exchanges are held mainly by non-US retail investors, while emerging market funds listed outside emerging markets are held mainly by foreign investors. Fund subscription and redemption flows are then used as an approximation of cross-border fund flows.

Methodology notes

• Event-Driven Strategies and Behavioral FinanceFund Flow/Positioning Analysis

  Using offshore-listed funds as a proxy for foreign investor fund flows

  The report uses flows into US-focused funds listed on non-US exchanges as a proxy for non-US retail investors' allocations to US assets, and flows into emerging market funds listed outside emerging markets as a proxy for foreign investors' allocations to emerging markets. It also combines South Korean retail trading data and Taiwanese US dollar bond ETF data to compare weekly and monthly fund-flow momentum.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US-focused equity ETFs and mutual funds

  Foreign capital remained in net inflow, but the pace of weekly and monthly inflows slowed.

  Strengths

  Cumulative inflows remained at USD9.1bn month-to-date in August.

  Weaknesses

  Weekly inflows fell from USD3.3bn to USD1.9bn, while cumulative August inflows were below the USD12.0bn recorded in July 2026.

  Comparison

  Among US-focused funds, equity flows were far larger than bond flows.

  Risks

  Elevated US yields weighed on investor sentiment.

• US-focused bond ETFs and mutual funds

  Weekly flows shifted from net outflows to net inflows.

  Strengths

  Inflows totaled USD247mn from August 14 to 20, compared with net outflows of USD86mn in the previous week.

  Weaknesses

  August month-to-date inflows totaled only USD346mn, significantly below those of US equity funds.

  Comparison

  Compared with equity funds, bond funds contributed less to total inflows into US-focused funds.

• Emerging market-focused ETFs

  Weekly inflows increased slightly, but the pace of cumulative inflows in August was slower than in July.

  Strengths

  Inflows totaled USD2.3bn from August 14 to 20, of which equity funds contributed USD2.2bn.

  Weaknesses

  August month-to-date inflows totaled USD6.7bn, below the USD8.2bn recorded in July 2026.

  Comparison

  Equity fund inflows were far higher than the USD147mn recorded by bond funds.

• US securities held by South Korean retail investors

  Weekly net purchases increased significantly, driven mainly by US equities.

  Strengths

  Net purchases totaled USD1.3bn from August 15 to 21, including USD987mn in US equities.

  Weaknesses

  August month-to-date net purchases totaled USD2.9bn, below the USD5.5bn recorded in July 2026.

  Comparison

  Weekly net purchases exceeded the previous week's USD534mn, while equity purchases were larger than bond purchases of USD275mn.

• US dollar bond ETFs listed on the Taiwan Stock Exchange

  Weekly inflows increased, while the monthly direction shifted from net selling in July to net buying in August.

  Strengths

  Inflows totaled USD304mn from August 14 to 20, above the previous week's USD179mn.

  Weaknesses

  August month-to-date net purchases totaled only USD315mn.

  Comparison

  Net sales totaled USD1.5bn in July 2026.

Key data

• Foreign inflows into US-focused fundsUSD2.2bnAugust 14 to 20, 2026; USD3.2bn in the previous week
• Inflows into US equity fundsUSD1.9bnAugust 14 to 20, 2026; USD3.3bn in the previous week
• August month-to-date inflows into US equity fundsUSD9.1bnUSD12.0bn in July 2026
• Inflows into US bond fundsUSD247mnAugust 14 to 20, 2026; net outflows of USD86mn in the previous week
• August month-to-date inflows into US bond fundsUSD346mnAs of the report's statistical cut-off date
• Total August month-to-date inflows into US-focused fundsUSD9.4bnOf which USD9.1bn flowed into equity funds
• Inflows into emerging market-focused ETFsUSD2.3bnAugust 14 to 20, 2026; USD2.2bn in the previous week
• Inflows into emerging market equity fundsUSD2.2bnAugust 14 to 20, 2026
• Inflows into emerging market bond fundsUSD147mnAugust 14 to 20, 2026
• August month-to-date inflows into emerging market fundsUSD6.7bnUSD8.2bn in July 2026
• South Korean retail investors' net purchases of US assetsUSD1.3bnAugust 15 to 21, 2026; USD534mn in the previous week
• South Korean retail investors' net purchases of US equitiesUSD987mnAugust 15 to 21, 2026
• South Korean retail investors' net purchases of US bondsUSD275mnAugust 15 to 21, 2026
• South Korean retail investors' August month-to-date net purchases of US assetsUSD2.9bnUSD5.5bn in July 2026
• Inflows into Taiwanese US dollar bond ETFsUSD304mnAugust 14 to 20, 2026; USD179mn in the previous week
• Taiwanese investors' August month-to-date net purchases of US dollar bondsUSD315mnNet sales of USD1.5bn in July 2026

Impact & implications

The fund-flow pattern presented in the report indicates that elevated US yields weakened foreign investors' marginal willingness to increase allocations to US equities, but did not cause broad-based capital withdrawals. Trends diverged across assets and investor channels: US equity inflows slowed, US bonds shifted from outflows to inflows, weekly inflows into emerging market ETFs edged higher, and related purchases by South Korean and Taiwanese investors also strengthened.

Risks

• Elevated US yields weighed on investor sentiment and coincided with slower foreign inflows into US equity funds.

What to watch

• Continue monitoring weekly foreign flows into US-focused equity and bond funds, and whether equity inflows slow further.
• Track whether inflows into emerging market equity and bond ETFs can sustain their weekly recovery.
• Monitor changes in South Korean retail investors' net purchases of US equities and bonds.
• Track inflows into Taiwanese US dollar bond ETFs and whether their monthly net purchases can continue.