North Asia retail flows support MXAPJ rebound, but foreign outflows and dollar/rate pressure remain

Overview

This edition of Asia-Pacific Weekly Kickstart focuses on weekly performance in Asia Pacific ex Japan, fund flows, rate and FX pressure, fund positioning, and progress in the 1Q26 earnings season. The report notes that MXAPJ rebounded after early weakness and closed up 1.1%, mainly led by Korea, Taiwan, and Singapore; Indonesia continued to fall sharply. Behind the move, local retail and leveraged money have become an important source of support for North Asia equities, while foreign investors continue to sell in Korea, Taiwan, India, and other markets.

Core views

The core view is: first, North Asia's strength is being driven more by local retail flows, margin trading, and leveraged ETFs than by global long-term capital adding exposure; second, foreign selling in large-cap technology names in Korea and Taiwan may reflect mechanical portfolio reweighting rather than broad risk-off behavior; third, higher U.S. rates and a stronger dollar are a macro headwind for North Asia, but the AI cycle, semiconductor exports, and earnings delivery are currently cushioning the pressure; fourth, the 1Q26 earnings reporting season has started stronger than historical seasonality, supporting the case for regional technology and earnings resilience; fifth, Indonesia has significantly lagged, and the central bank's surprise rate hike has further widened market divergence.

Analysis framework

The report uses a weekly market review framework, combining regional index performance, sector performance, foreign and local fund flows, mutual fund positioning, earnings season progress, policy risk indicators, and high-frequency macro indicators. The flow section compares foreign net buying, local retail flows, margin balances, and domestic ETF inflows; the earnings section tracks the number of companies reported, market-cap coverage, beat rates, and year-over-year and quarter-over-quarter earnings growth; the macro section focuses on the U.S. FOMC minutes, U.S. GDP and housing data, China property and activity data, Korean exports, and Indonesian monetary policy.

Methodology notes

• Flow analysisForeign net buying vs. local retail flows

  Compare foreign outflows alongside local retail, margin, and leveraged ETF inflows to determine whether the rally is being driven by global capital allocation or domestic risk appetite.

  The report finds that although Korea and Taiwan saw net foreign selling, rising local retail and leveraged ETF participation explains why North Asia markets were still able to rise despite foreign outflows.

• Fund positioning analysisEPFR mutual fund positioning tracking

  Use early EPFR data, which covers about 50% of reported AUM, to observe changes in Asia and EM fund overweights and underweights relative to benchmarks.

  In April, Asia funds increased exposure to China and Taiwan while reducing exposure to Korea and Hong Kong; EM funds added China and India and cut Korea and Taiwan.

• Earnings season trackingMXAPJ 1Q26 earnings tracker

  Assess earnings season quality by the number of companies reported, market-cap coverage, year-over-year and quarter-over-quarter earnings growth, full-year estimate completion, and the share of beats and misses.

  As of the report date, 876 companies had reported, covering 79% of MXAPJ market cap; earnings were up 49% year over year and 57% quarter over quarter, and actual earnings had reached 24% of full-year estimates.

• Macro stress testSensitivity of regional equities to U.S. rates and the dollar

  Track the impact of changes in the U.S. 10-year Treasury yield and the dollar on North Asia equity valuations and risk appetite.

  The report notes that the U.S. 10-year yield has rebounded 60bp and the dollar is up 2%; historically this would weigh on North Asia equities, but the AI cycle and earnings delivery have softened the impact.

Asset mapping & comparison

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

• MXAPJ.US

  Core regional index in the report

  Strengths

  Up 1.1% this week, with a strong start to earnings season and leadership from technology hardware and semiconductors, capital goods, and software and services.

  Weaknesses

  Weighed by foreign outflows, a stronger dollar, and rising U.S. rates; performance within the region is highly divergent.

  Comparison

  Korea, Taiwan, and Singapore outperformed, while Indonesia, offshore China, and Hong Kong lagged.

  Risks

  Persistent foreign selling, higher rates, a stronger dollar, geopolitical risk, and earnings delivery coming in below expectations.

• Korean equities

  Main positive contributor this week

  Strengths

  Up 6% this week, with early-May exports rebounding on semiconductors and rising participation from retail and leveraged ETFs.

  Weaknesses

  Net foreign selling of US$8.7bn this week and US$62bn year to date.

  Comparison

  Significantly outperformed MXAPJ and most other Asia-Pacific markets.

  Risks

  Foreign de-risking in large-cap tech, volatility in retail leveraged flows, and pressure from U.S. rates and the dollar.

• Taiwan equities

  Key North Asia technology-chain market

  Strengths

  Up 2% this week, supported by local ETF and non-institutional flows, and fund managers increased Taiwan exposure in April.

  Weaknesses

  Net foreign selling of US$9bn year to date, with part of the outflow concentrated in large-cap technology names such as TSMC.

  Comparison

  Performed better than India, Indonesia, Hong Kong, and offshore China, but weaker than Korea.

  Risks

  Foreign weight rebalancing, semiconductor cycle volatility, and pressure from U.S. rates and the dollar.

• Indonesian equities

  Regional laggard market

  Strengths

  The report does not identify any significant positive support.

  Weaknesses

  Fell another 8% this week, and Bank Indonesia unexpectedly delivered a preventive 50bp rate hike.

  Comparison

  Clearly lagged Korea, Taiwan, Singapore, and MXAPJ overall.

  Risks

  Policy tightening, capital outflows, and weakening regional risk appetite.

• China and Hong Kong equities

  Observed in fund positioning and regional allocation

  Strengths

  Asia and EM funds increased China exposure in April; southbound flows and domestic ETF money in China still provide support; first-tier city home prices continued to rise sequentially.

  Weaknesses

  Offshore China and Hong Kong both fell 2% this week, April activity data came in below expectations, and property and exports remain key variables.

  Comparison

  Short-term performance lagged North Asia tech markets, but fund positioning has seen marginal additions.

  Risks

  Weaker-than-expected macro data, an unstable property recovery, policy shocks, and U.S.-China relation risks.

• U.S. rates and the dollar

  Macro headwind for regional equities

  Strengths

  Not a risk-asset allocation target, but a useful macro pressure indicator.

  Weaknesses

  The U.S. 10-year yield has rebounded 60bp and the dollar is up 2%; historically this tends to weigh on North Asia equities.

  Comparison

  Offsets the AI cycle and earnings delivery: macro headwinds are rising, but fundamentals are still providing a buffer.

  Risks

  If U.S. inflation remains above 2% and triggers further policy tightening, regional valuation pressure could intensify.

Key data

• MXAPJ weekly performance+1.1%The index recovered early losses and ended higher.
• Korea market performance+6%The strongest regional performer this week, driving the MXAPJ rebound.
• Taiwan and Singapore performance+2% / +2%Both outperformed the regional index.
• Indonesia performance-8%Continued to lag significantly behind the regional market.
• Offshore China and Hong Kong performance-2% / -2%Both declined.
• EM Asia net foreign sellingUS$9.4bnWeekly foreign outflows, driven mainly by Korea.
• Korea net foreign sellingUS$8.7bnThe largest foreign outflow market this week.
• Korea year-to-date foreign outflowsUS$62bnForeign selling has concentrated in large-cap technology names such as Samsung Electronics and SK Hynix.
• Taiwan year-to-date foreign outflowsUS$9bnForeign selling has concentrated in large-cap technology names such as TSMC.
• Change in U.S. 10-year Treasury yield+60bpRebounded since the start of the Middle East conflict.
• Change in the dollar+2%Strengthened since the start of the Middle East conflict.
• MXAPJ 1Q26 companies reported876 companies, covering 79% of market capEarly earnings-season sample.
• MXAPJ 1Q26 earnings growth+49% YoY / +57% QoQActual earnings progress is stronger than historical seasonality.
• MXAPJ beat rate49% beat, 27% missMedian earnings surprise was +5%.
• Korea early-May exportsRebounded on semiconductorsReinforces resilience in the regional tech export cycle.

Impact & implications

In terms of investment implications, the report supports continued focus on North Asia, especially Korea and Taiwan, where technology-led rallies remain the key theme, but investors need to distinguish between price momentum and the quality of the funding base. Local retail and leveraged flows can amplify gains in the short term, but they also increase volatility and drawdown risk. Persistent foreign selling indicates that global capital has not yet fully reallocated into North Asia. Strong earnings season results and improving semiconductor exports provide fundamental support for the tech chain, but U.S. rates, the dollar, Middle East tensions, weaker China data, Indonesia's policy tightening, and foreign outflows could still constrain regional valuation expansion.

Risks

• If the U.S. FOMC minutes remain hawkish and inflation stays above 2%, many participants could support further policy tightening.
• A stronger U.S. 10-year Treasury yield and a stronger dollar could weigh on North Asia equity valuations and fund flows.
• Continued EM Asia foreign selling, especially the large scale of outflows from Korea, could weaken the sustainability of the rally.
• North Asia's upswing is increasingly dependent on retail, margin, and leveraged ETF flows, which could amplify volatility.
• Uncertainty around the Middle East situation and U.S.-Iran talks continues to affect energy, rates, and risk appetite.
• China's April activity data came in below expectations, and property and exports remain key variables going forward.
• Bank Indonesia's surprise rate hike and the market selloff show that regional divergence and policy risk remain elevated.
• Stocks that beat earnings expectations often underperform historical patterns over longer post-report windows, suggesting that the price reaction after earnings delivery may not always persist.

What to watch

• U.S. inflation, FOMC language, and the direction of the U.S. 10-year Treasury yield.
• The dollar index and pressure on Asian currencies versus the U.S. dollar.
• Whether foreign outflows from Korea and Taiwan ease, especially changes in long-term capital allocation to large-cap technology names.
• Whether local retail flows, margin balances, and leveraged ETF AUM continue to rise or begin to reverse.
• Further MXAPJ 1Q26 earnings disclosures, including beat rates, full-year earnings completion, and earnings revisions.
• Whether Korea's semiconductor exports and AI-related demand can continue.
• China property prices, exports, and the strength of policy support.
• Post-hike fund flows, FX performance, and equity performance in Indonesia.
• The US-China Relations Barometer and other policy risk indicators.