North Asia foreign investor selling pressure continues, offset by southbound and India domestic flows

Overview

This is a Goldman Sachs weekly emerging-market flow monitoring report that focuses on foreign investors, domestic institutions, southbound/northbound Stock Connect, global equity funds, and retail flows. The core backdrop is a notable drawdown in emerging markets and the US momentum factor, which has triggered foreign investors to repeatedly reduce exposure to EM stocks excluding China over the past three weeks, with sell pressure concentrated in North Asia tech and AI-related markets. At the same time, Mainland China-Hong Kong southbound flows, India domestic mutual funds, and some ASEAN markets are showing signs of absorbing flows.

Core views

The core view of the report is: first, momentum unwind is pushing foreign investors out of EM ex-China equities, with about US$44bn net sold over the past three weeks, with Korea at about US$25bn and Taiwan at about US$20bn being the main contributors; second, capital is not fully withdrawing from Asia, with India at about +US$2.2bn and Thailand at about +US$0.9bn seeing net buying, indicating rotation within the region; third, domestic institutional investors bought about US$10bn in total over the past three weeks, providing some hedge against foreign sell pressure; fourth, southbound funds continue to flow strongly into Hong Kong stocks, with about +US$5bn in the week and about +US$44bn year-to-date; fifth, India domestic equity fund inflows recovered in June, suggesting local retail and long-term systematic inflows remain resilient.

Analysis framework

The report uses a multi-source flow framework, combining exchange-reported FII/DII flows, EPFR fund flows, Stock Connect southbound and northbound data, AMFI India domestic fund data, CCASS position information, and Goldman’s own retail sentiment and equity risk indicators, and examines buy/sell directions across investor types on weekly, three-week, monthly, and year-to-date dimensions.

Methodology notes

• Flow monitoringFII/DII flow tracking

  Breakdown of foreign and domestic institutional capital flows

  Using exchange data, observe net buying or net selling by foreign institutional investors and domestic institutions across different markets to distinguish cross-border risk appetite from local flow support capacity.

• Fund flow monitoringEPFR equity fund flows

  Active/passive flows in global and emerging-market equity funds

  Use EPFR fund flow data to track subscription/redemption changes in GEM, AEJ, country, and sector funds, and judge whether capital is pulling back from sectors such as tech hardware, semiconductors, and banks.

• Cross-border connectivity flowsStock Connect Southbound and Northbound flows

  Observing southbound and northbound turnover/positions

  Southbound flows represent Mainland China investors buying Hong Kong-listed stocks. The report separates these from foreign investor flows to assess how much support is coming from onshore investors.

• Domestic India flowsAMFI domestic mutual fund flows

  India domestic mutual funds and SIP inflows

  Assess the stability and recovery of local retail capital through AMFI monthly data on Indian equity funds and SIP systematic investments.

Asset mapping & comparison

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

• Korean equities

  One of the markets most concentrated with foreign investor selling pressure

  Strengths

  Domestic institutions bought over the past three weeks, partially cushioning foreign sell pressure.

  Weaknesses

  Foreign investors have sold about US$25bn net over the past three weeks, and cumulative foreign sell-off in 2026 ranks among the largest in the report sample.

  Comparison

  Compared with India and Thailand, Korea is more affected by momentum unwind and adjustments to AI/technology weight.

  Risks

  Levered ETFs and margin balances could amplify intraday volatility.

• Taiwan equities

  A North Asia tech and AI-weighted market with significant recent foreign sell pressure

  Strengths

  Retail bought about US$3.3bn in the week, and domestic flows offer some support.

  Weaknesses

  Foreign investors sold about US$20bn net over the past three weeks, with about US$5.9bn outflow in the week.

  Comparison

  Similar to Korea, Taiwan is affected by outflows from technology hardware and semiconductors, though retail flows remain relatively active.

  Risks

  Ongoing momentum drawdown and unwinding crowded positioning in technology could continue to suppress flows.

• Hong Kong/southbound-covered universe

  Beneficiary assets of continued buying by Mainland China investors

  Strengths

  Southbound flows brought in about US$5bn in the week and around US$44bn year-to-date, indicating strong domestic support.

  Weaknesses

  Southbound flows should not be interpreted as foreign capital inflows; foreign investor risk appetite still needs separate monitoring.

  Comparison

  Compared with EM Asia ex-China FII outflows, southbound flows show a clear reverse inflow pattern.

  Risks

  If Mainland investor preferences change or Hong Kong market structure changes, the level of support may fluctuate.

• India equities and domestic funds

  Proxy for regional rotation and resilience of local capital

  Strengths

  Domestic equity fund inflows in June rose 27% month-on-month to US$3.1bn, and SIP remained about US$3.4bn/month.

  Weaknesses

  Cash allocation in some funds has fallen to a five-year low of 3.1% AUM, so room for absorbing additional outflows may be limited.

  Comparison

  Compared with Korea and Taiwan, India saw net foreign buying of about US$2.2bn over the past three weeks.

  Risks

  If global risk appetite keeps weakening, the rebound in foreign capital inflows may be unstable.

• GEM/AEJ technology hardware, semiconductors, and banking sectors

  Industry direction with the most visible fund outflows recently

  Strengths

  In the longer term, these sectors may remain supported by AI and broader technology-cycle interest.

  Weaknesses

  EPFR sector flow data show that over the past three weeks, technology hardware, semiconductors, and banking saw the largest outflows within GEM/AEJ funds.

  Comparison

  Compared with later-affected sectors such as consumer retail, technology hardware, semiconductors, and banking are the current core risk-off lanes.

  Risks

  Unwinding crowded trades and momentum drawdown may lead to further de-risking and reductions.

Key data

• EM Asia ex-China weekly FII outflowUS$6.5bnMainly driven by Taiwan at US$5.9bn and Korea at US$2.3bn.
• EM ex-China three-week foreign investor net sellingabout US$44bnSince June 19, pressure was concentrated in Korea at about US$25bn and Taiwan at about US$20bn.
• Three-week cumulative DII buyingabout US$10bnDomestic institutions provided flow support in Korea, India, and Taiwan markets.
• Southbound weekly inflow+US$5bnYear-to-date total is about +US$44bn.
• Global equity fund weekly inflowUS$56bnThe prior week saw US$14bn of outflows, now clearly improved.
• GEM fund year-to-date inflowabout US$47bnBut recent weekly flows have weakened, and GEM active funds outflowed about US$7bn over the past three weeks.
• India domestic equity fund June inflowUS$3.1bnUp 27% month on month, rebounding from a May low of US$2.4bn.
• India SIP monthly inflowabout US$3.4bn/monthMonth-on-month about +3%, indicating sticky retail flows remain stable.
• Asia retail inflow year-to-dateUS$75bnTaiwan and Korea saw weekly retail buying of about US$3.3bn and US$1.8bn respectively.

Impact & implications

The report implies that short-term emerging-market risk appetite is rotating out of momentum and North Asia technology exposure, with sectors including Korea, Taiwan, technology hardware, semiconductors, and banks potentially continuing to face flow pressure. By contrast, southbound flows into Hong Kong, India domestic mutual funds, SIP systematic investing, and some ASEAN markets appear more resilient and may provide relative support in regional flow rotation. For asset allocation, it is important to distinguish short-term liquidity stress from foreign risk-off behavior from the structural support provided by domestic capital.

Risks

• Further momentum factor drawdown could trigger additional risk-off selling by foreign investors from North Asia tech and AI-related markets.
• Foreign sell pressure in Korea and Taiwan is highly concentrated and could amplify regional index and sector volatility.
• Levered ETFs and margin balances are rising in North Asia, and intraday rebalancing may intensify short-term volatility.
• India stock fund cash levels have fallen to a five-year low; if the market declines, room for additional buying by funds may be limited.
• Although global fund flows improved this week, GEM active funds still show clear outflows over the past three weeks, so the fund flow trend has not fully reversed.

What to watch

• Whether Korean and Taiwan FII outflows ease over the next few weeks.
• Whether southbound flows can maintain strong weekly net buying and continue to support core Hong Kong names.
• Whether India AMFI monthly equity fund and SIP data continue the June recovery trend.
• Whether EPFR shows GEM active funds moving from outflows to stabilization or inflows.
• Whether industry flows in technology hardware, semiconductors, banking, and consumer retail remain under pressure.
• Whether North Asia levered ETF AUM, margin balances, and retail sentiment indicators continue to heat up.