Foreign selling in North Asia continues, while Southbound flows and some EM fund inflows remain strong

Overview

This report is Goldman Sachs' EM Weekly Fund Flows Monitor, covering foreign investors, domestic investors, Southbound flows, global equity funds, hedge fund positioning, mutual fund positioning, and Korea leveraged flows. The core conclusion is that North Asia tech- and AI-related markets continue to dominate foreign de-risking, while Southbound Connect and some domestic/retail flows remain resilient, global equity funds still show strong aggregate inflows, but active fund and hedge fund positioning has clearly cooled.

Core views

First, at the foreign investor level, EM Asia ex-China saw FII outflows of US$9.2bn this week, mainly from Taiwan and Korea; over the past four weeks, cumulative net foreign selling in EM ex-China reached about US$53bn, concentrated in AI/tech-heavy North Asia, including about -US$29bn in Taiwan and about -US$26bn in Korea. Second, domestic and Southbound flows provide some cushion, with Southbound inflows of US$4.7bn this week and US$49bn year to date, while domestic institutions have cumulatively bought more than US$10bn over the past three weeks. Third, at the fund level, global equity funds saw inflows of US$56bn this week, while GEM funds took in US$1.8bn this week and about US$49bn year to date, although some active funds have still seen outflows recently. Fourth, on positioning, hedge funds continued to reduce gross leverage and were net sellers in July, while Asia remains the most overweight region relative to MSCI World ACWI, though the overweight has fallen from the June peak of +20.2% to +16.4%.

Analysis framework

The report combines EPFR fund flow data, Goldman Sachs FICC and Equities prime brokerage/Prime Book positioning data, Bloomberg, FactSet, MSCI, HKEX, Wind, Quantiwise, the Korea Financial Investment Association, and local exchange data to cross-check weekly, year-to-date, past-four-week, and past-three-month changes in flows, positioning, and regional/sector allocations.

Methodology notes

• fund_flow_monitoringFII/DII and Southbound flow tracking

  Layered tracking of foreign, domestic, and Southbound flows

  Foreign institutional investors, local domestic institutional or retail money, and Mainland investors buying Hong Kong stocks through Southbound Connect are tracked separately to identify the differences between foreign de-risking and local flow absorption.

• positioning_analysisHedge fund gross/net leverage and Prime Book OW/UW

  Hedge fund leverage and relative over/underweight versus benchmark

  Changes in risk exposure are measured through fundamental long/short funds' gross leverage, net leverage, regional net buying, and over/underweight positions relative to MSCI World ACWI.

• mutual_fund_positioningEPFR active fund allocation change

  Active allocation changes in mutual funds

  Preliminary EPFR data are used to track country and sector over/underweights versus benchmark in AEJ and GEM active funds, as well as 1-month and 3-month allocation changes.

• leverage_risk_monitoringKorea leveraged ETF and margin financing indicators

  Risk monitoring of Korea leveraged ETFs and margin balances

  Korea leveraged ETF AUM, its share of total ETF assets, margin call receivables, and margin financing balances are used to assess retail leverage and market volatility risks.

Asset mapping & comparison

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

• EM Asia ex-China equities

  Core area under observation and the main region of concentrated foreign outflow pressure

  Strengths

  Some domestic institutional and retail money are still buying, and Southbound inflows support Hong Kong stocks.

  Weaknesses

  FII outflows reached US$9.2bn this week, and foreign outflows have been large year to date in 2026.

  Comparison

  Compared with Non-Asia EMs, foreign de-risking is more pronounced in Asia, especially North Asia.

  Risks

  A reversal in AI/tech momentum, hedge fund deleveraging, and concentrated foreign selling may continue to pressure the market.

• Hong Kong-listed China equities / H-shares

  Directly affected by Southbound Connect flows

  Strengths

  Southbound inflows were US$4.7bn this week and US$49bn YTD; top buying included 2513.HK, 9988.HK, 9999.HK, 0700.HK, etc.

  Weaknesses

  Overall China and Asia risk appetite is still affected by foreign de-risking and the global tech pullback.

  Comparison

  Compared with foreign outflows from Taiwan and Korea, Hong Kong equities are receiving clear support from Southbound flows.

  Risks

  If Southbound inflows slow or foreign investors continue selling China-related exposure, valuation recovery may be constrained.

• Taiwan equities

  One of the markets dominated by North Asia foreign selling

  Strengths

  The report notes US$0.9bn of retail buying in Taiwan, and some tables show divergence in fund positioning changes.

  Weaknesses

  FII outflows reached US$8.8bn this week, and foreign selling over the past four weeks was about US$29bn.

  Comparison

  Within North Asia, Taiwan and Korea are both facing de-risking pressure in AI/tech-heavy exposures.

  Risks

  Outflows from Tech HW & Semis and a momentum reversal may continue to increase volatility.

• Korea equities

  A key market for foreign de-risking, mutual fund underweighting, and leveraged flow risk

  Strengths

  Korea saw about US$1bn of retail buying this week, and DII flows have also been positive in recent weeks.

  Weaknesses

  FII selling reached about US$103bn YTD in 2026, EM funds cut Korea by 115bp over the past 3 months, and Korea Tech H/W & Semis is significantly underweight.

  Comparison

  Compared with India and some ASEAN markets, Korea faces stronger foreign selling pressure.

  Risks

  High levels of leveraged ETFs, margin balances, and margin call receivables may amplify market corrections.

• India equities

  One of the directions of mutual fund reallocation

  Strengths

  EM funds increased India by 25bp in June and 90bp over the past 3 months; some foreign flow data also show selective recent buying into India.

  Weaknesses

  FII is still in outflow year to date, and the tables show India remains underweight in some active funds.

  Comparison

  Relative to Korea, which has been cut, India has become a recent add position for EM funds.

  Risks

  If broader foreign de-risking across EM continues, India may also face flow-related drag.

• GEM equity funds

  A key gauge of global EM fund inflows

  Strengths

  Inflows were US$1.8bn this week and about US$49bn YTD; the report says the buying pace is among the fastest in the past two decades.

  Weaknesses

  There have been signs of outflows in recent weeks, and the active/passive flow mix is diverging.

  Comparison

  Compared with slowing Europe-focused inflows, GEM and US funds have seen stronger inflows since 2025.

  Risks

  If active fund redemptions expand or foreign EM selling intensifies, the resilience of GEM inflows may weaken.

Key data

• Weekly FII outflow from EM Asia ex-ChinaUS$9.2bnMainly driven by Taiwan at -US$8.8bn and Korea at -US$0.4bn.
• Weekly foreign outflow from Non-Asia EMs约US$50mnThe report says this was led by the UAE at about -US$0.1bn.
• Weekly Southbound inflowUS$4.7bnYear-to-date Southbound inflows reached US$49bn.
• Weekly inflow into global equity fundsUS$56bnRoughly similar to the previous week.
• Weekly inflow into US equity fundsUS$16bnAmong DMs, US funds continue to see sizable inflows.
• Weekly and year-to-date inflows into GEM fundsUS$1.8bn w/w; US$49bn YTDThe report says GEM funds have seen about US$49bn of inflows year to date.
• Asia Fundamental L/S July MTD performance-11.7%Global Fundamental L/S was -3.4% over the same period.
• Global Fundamental L/S gross leverage207.2%It declined in 5 of the past 6 weeks; net leverage fell to 54.5%.
• Asia overweight versus MSCI World ACWI+16.4%Below the June record high of +20.2%, but still the most overweight region.
• June India allocation change in EM funds+25bpOver the past 3 months, India +90bp, China +115bp, Korea -115bp.
• Korea leveraged ETFs as share of total ETF AUM约5%Leveraged ETF AUM has returned to around the level seen before the launch of single-stock leveraged ETFs.
• Korea margin financing balanceKRW 33 trillionBelow the peak of KRW 38 trillion; about 0.5% after market-cap adjustment.
• Korea margin call receivables3.8%Still at a high level as of July 15.
• Top weekly Southbound net buy2513.HK Knowledge Atlas Tech (Zhipu) (H), US$1,410mnOthers include 9988.HK Alibaba Group, 9999.HK NetEase, 0700.HK Tencent, etc.

Impact & implications

The flow structure shows that market risk appetite has not fully recovered; instead, it reflects a coexistence of foreign withdrawals from North Asia tech/AI-related exposure, hedge fund deleveraging, mutual fund rotation, and support from local money. For Hong Kong and China-related assets, strong Southbound flows provide liquidity support; for tech-heavy markets such as Taiwan and Korea, foreign and hedge fund de-risking may continue to amplify volatility; for India, mutual fund reallocation indicates improving relative attractiveness.

Risks

• A reversal in North Asia AI/tech momentum could lead foreign investors and hedge funds to continue de-risking.
• Declines in hedge fund gross and net leverage could trigger further forced deleveraging.
• Highly concentrated foreign selling in Taiwan and Korea may amplify regional market volatility.
• Korea margin call receivables remain elevated at 3.8%, and retail leverage risk still warrants attention.
• Although GEM funds have recently seen inflows, active fund outflows and regional rotation may weaken sustainability.
• If Southbound flows slow, liquidity support for Hong Kong equities may weaken.

What to watch

• Whether weekly foreign outflows from EM Asia ex-China spread from Taiwan and Korea to other markets.
• Whether weekly Southbound Connect inflows can remain strong, and whether major buying continues to concentrate in technology and internet leaders.
• Whether global Fundamental L/S gross leverage stays below 207.2% and whether Asia's overweight continues to decline from +16.4%.
• Whether subsequent full June and July EPFR data confirm the trends of adding India, cutting Korea, and adding China.
• Whether Korea leveraged ETF AUM, margin financing balances, and margin call receivables deteriorate further.
• Whether active and passive flow trends in GEM funds continue to diverge.