Foreign investors continue de-risking in EM ex-China, while China positioning and inflows into National Team-related ETFs stand out as relative bright spots

Overview

This report is Goldman Sachs' EM Weekly Fund Flows Monitor, focusing on tracking foreign FII, domestic institutional DII, Southbound flows, global equity fund flows, mutual fund positioning, as well as Korea leverage and China National Team-related ETF flow signals. The report argues that emerging markets excluding China remain in a phase of foreign de-risking, with Taiwan and Korea being the main sources of selling; however, relatively positive signals have emerged for China-related assets in active fund positioning, Southbound flows, and onshore ETF subscriptions.

Core views

First, foreign selling is still ongoing: over the past five weeks EM ex-China equities have seen cumulative net selling of about US$52bn, with Taiwan and Korea serving as the main pressure points due to their high AI/tech weights. Second, mutual fund positioning is showing regional reallocation: EM funds remain most overweight Brazil and Mexico, and most underweight Taiwan and Korea, but over the past three months they increased China by 205bp and reduced Korea by 140bp. Third, at the sector level, Asia and EM funds are most overweight China Industrials and most underweight Taiwan and Korea Tech H/W & Semis, indicating rotation from tech hardware and semiconductors toward Chinese industrials, consumer retail, banks, and other areas. Fourth, Korea's retail leverage risk has cooled somewhat, with leveraged ETFs accounting for about 5% of total ETF AUM, while margin balances and margin pressure have both retreated from elevated levels. Fifth, China's onshore National Team-preferred ETFs have seen about RMB100bn of net inflows over two weeks, suggesting that policy-related or stabilization capital may be reactivating.

Analysis framework

The report uses a fund flow monitoring framework that combines FII, DII, Southbound Connect, global equity fund subscriptions/redemptions, EPFR active fund positioning, ETF subscriptions, and Korean margin financing data to identify changes in risk appetite at the regional, country, and sector levels across weekly, year-to-date, recent five-week, and recent three-month horizons.

Methodology notes

• Fund flow trackingFII / DII flows

  Distinguishes net equity buying or selling by foreign institutions and local institutions

  FII is used to observe cross-border foreign risk appetite, while DII is used to observe whether local institutional capital offsets pressure from foreign outflows.

• Fund positioning analysisEPFR active fund positioning

  Uses active funds' OW/UW positioning relative to benchmarks to measure regional and sector preferences

  The report is based on final EPFR data through end-June 2026, covering the top 350 active funds in AEJ/EM, and notes that the data may be revised as new fund disclosures come in.

• Trading channel flowsSouthbound Connect flows

  Capital flows of mainland investors buying Hong Kong stocks through Southbound Connect

  The report explicitly states that Southbound Connect is closer to mainland China capital behavior rather than FII foreign flows.

• Leverage risk monitoringKorea leveraged ETF and margin financing

  Uses leveraged ETF AUM, margin balances, and margin call indicators to gauge Korean retail leverage pressure

  The report shows that Korean leveraged ETFs and margin balances have retreated from highs, with leverage pressure easing at the margin.

• Policy capital signalNational Team ETF flow signal

  Uses net subscriptions into National Team-preferred ETFs to identify stabilizing capital behavior in China's onshore market

  The top 10 A-share ETFs preferred by National Team holdings saw net inflows of about RMB100bn over the past two weeks, interpreted as a signal of resumed National Team buying.

Asset mapping & comparison

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

• China equities and China-related fund positioning

  Benefiting from increased allocations by EM/Asia active funds and inflows into National Team-related ETFs

  Strengths

  EM funds increased China exposure by 205bp over the past three months, and Asia funds also showed the strongest increase in China exposure; the top 10 National Team-preferred onshore ETFs recorded about RMB100bn of net inflows over two weeks.

  Weaknesses

  The overall foreign de-risking environment in EM ex-China may still affect regional risk appetite; some Chinese banks still appear underweight in sector positioning tables.

  Comparison

  Compared with Taiwan and Korea, China has a stronger relative advantage in changes in active fund positioning.

  Risks

  If National Team buying is not sustainable or global risk appetite continues to decline, the improvement in China's flow backdrop may be insufficient to offset regional foreign outflows.

• Taiwan equities and tech hardware semiconductors

  Area of concentrated foreign selling and fund underweight pressure

  Strengths

  The report does not provide a clear flow-related advantage.

  Weaknesses

  Taiwan saw FII outflows of US$2.2bn this week, and foreign selling over the past five weeks has been highly concentrated in Taiwan; EM funds are most underweight Taiwan, and Taiwan Tech H/W & Semis is also a clear underweight at the sector level.

  Comparison

  Compared with China and some LatAm markets, Taiwan's flow and positioning momentum is weaker.

  Risks

  Its high AI/tech weighting means foreign de-risking becomes more concentrated during momentum pullbacks.

• Korea equities and leveraged ETFs

  Foreign and fund positioning remain under pressure, but retail leverage stress is easing

  Strengths

  Korea saw FII inflows of US$1.4bn this week; leveraged ETF AUM, margin balances, and margin call indicators have retreated from high levels.

  Weaknesses

  Korea has seen FII outflows of US$101.4bn in 2026, EM funds reduced Korea by 140bp over the past three months, and Korea Tech H/W & Semis remains underweight.

  Comparison

  Korea's flow backdrop is weaker than China and Brazil, but leverage risk has improved at the margin compared with the prior high-pressure state.

  Risks

  If tech hardware and semiconductors remain under pressure, foreign and fund underweight positioning may persist.

• Hong Kong stocks favored by Southbound flows

  Affected by inflows from mainland capital

  Strengths

  Southbound saw inflows of US$0.4bn this week and US$49bn year to date; this week's net buying included Hua Hong Semiconductor, Z.AI (Zhipu) (H), NetEase, and Meituan.

  Weaknesses

  Some large-cap heavyweights such as Tencent, Alibaba Group, and The Tracker Fund of Hong Kong saw net Southbound selling.

  Comparison

  Southbound capital reflects mainland investor preferences and differs from FII foreign flows.

  Risks

  Southbound flows are structurally differentiated, with significant differences in buy/sell direction at the single-stock level.

• Brazil and LatAm markets

  Supported by EM active fund overweight positioning and foreign inflows

  Strengths

  EM funds are most overweight Brazil, and Brazil has seen FII inflows of US$7.1bn in 2026; Non-Asia EM as a whole has seen inflows of US$9.8bn year to date.

  Weaknesses

  Brazil still recorded foreign selling of -US$74mn this week.

  Comparison

  Compared with Korea and Taiwan, Brazil has stronger foreign flow momentum in 2026.

  Risks

  Short-term weekly flows may weaken, and a decline in global risk appetite would affect overall emerging market allocations.

Key data

• EM Asia ex-China weekly FII flows-US$0.2bn w/wTaiwan at -US$2.2bn was the main drag, partly offset by Korea at +US$1.4bn and India at +US$0.6bn.
• Non-Asia EM weekly FII flowsabout -US$0.1bn w/wMainly driven by Brazil at -US$74mn.
• Southbound weekly inflows+US$0.4bn w/wSouthbound inflows are US$49bn year to date.
• Global equity fund weekly inflows+US$30bn w/wLower than last week's US$56bn inflow; GEM funds were +US$1.9bn this week and +US$51bn year to date.
• Change in China positioning by EM funds over the past three months+205bpBased on final EPFR active fund data through end-June 2026.
• Change in Korea positioning by EM funds over the past three months-140bpThe report says investors continue to reduce Korea exposure.
• Korea margin balanceKRW 32tnDown from a peak of KRW 38tn.
• Korea margin call receivables ratio0.7%As of July 23, it has eased from higher levels.
• Korea leveraged ETF share of ETF AUMabout 5%Although the share has risen recently, it is still about 5% of total ETF AUM overall.
• Net inflows into China National Team-preferred ETFsabout RMB100bnNet inflows into the top 10 National Team-preferred ETFs over the past two weeks.
• Foreign net selling in EM ex-China over the past five weeksabout US$52bnSince June 19, selling has been concentrated in Taiwan and Korea.
• 2026 Non-Asia EM FII inflows+US$9.8bnBrazil at +US$7.1bn and Poland at +US$1.2bn were the main contributors.
• 2026 Korea FII flows-US$101.4bnOne of the most prominent markets for foreign selling within EM.
• 2026 Brazil FII flows+US$7.1bnThe strongest foreign buying within Non-Asia EM.

Impact & implications

For asset allocation, the report suggests that short-term EM risk appetite remains suppressed by foreign de-risking, especially in Taiwan, Korea, and the tech hardware and semiconductor chain; however, the relative improvement in China-related flows may reduce downside pressure and increase relative attention on Chinese industrials, consumer retail, banks, and selected Hong Kong stocks favored by Southbound flows. For Korea, the cooling in leverage reduces systemic squeeze risk, but foreign and fund positioning remains weak.

Risks

• The continuation of foreign de-risking in EM ex-China may continue to weigh on emerging market equity performance.
• Concentrated foreign selling in Taiwan and Korea could put pressure on AI/tech hardware and semiconductor chains.
• Although inflows into China National Team-related ETFs provide support, their sustainability and scale still need to be monitored.
• Although Korea's leverage indicators have eased, financing and leveraged ETF pressure could rise again if the market continues to fall.
• EPFR fund positioning data is based on disclosures through end-June and may be revised later as new fund reports are released.

What to watch

• Whether net FII selling in EM ex-China slows over the coming one to several weeks, especially in Taiwan and Korea.
• Whether net subscriptions into China National Team-preferred ETFs continue, and whether they spread to a broader range of A-share ETFs.
• Whether EM and Asia active funds continue to increase China while reducing Korea and Taiwan.
• Whether Korea's margin balances, margin call receivables ratio, and leveraged ETF AUM continue to decline.
• Differentiation in Southbound flows among Hong Kong stocks such as Tencent, Alibaba Group, Meituan, SMIC, and Hua Hong Semiconductor.
• Whether GEM fund inflows remain strong, and whether net selling by US and Europe funds within DM continues.