Fund flows diverged significantly in August: Taiwan and India led foreign buying, while Korea faced the greatest selling pressure

Overview

The report tracks flows into global and emerging-market equities from foreign investors, domestic institutions, retail investors, Southbound Stock Connect, and mutual funds. It combines these data with fund holdings at the end of July, August performance, and the September FTSE index rebalancing to assess the near-term fund-flow environment. The key conclusion is that Taiwan and India attracted concentrated buying in August, while Korea continued to face the most significant foreign selling pressure; meanwhile, emerging-market and Asian funds rebounded markedly following the July drawdown.

Core views

Regional foreign flows diverged sharply in August. Taiwan received US$9.5bn of foreign net buying, India received US$3bn, while Korea recorded US$8.8bn of net outflows. Over the latest week, emerging Asia excluding China saw combined outflows of US$2.5bn, driven mainly by US$6.3bn of selling in Korea, although US$3.7bn of buying in Taiwan offset some of the pressure. Non-Asian emerging markets received about US$140mn this week, including US$280mn of inflows into Brazil and US$130mn of outflows from the UAE. Domestic capital supported certain markets. Domestic buying in August was concentrated mainly in India, totaling US$5bn. Over the latest week, domestic institutions invested US$2.5bn in Asian markets, including US$1.5bn in India and US$0.7bn in Taiwan. Domestic institutions withdrew US$0.1bn from non-Asian emerging markets over the same period, including US$0.3bn from Brazil, while the UAE received US$0.1bn. Indian domestic institutions have purchased a cumulative US$59bn in 2026, the highest among the markets covered in the report. Longer-term data still show substantial foreign pressure on Asia. The report states that emerging markets excluding China recently experienced US$124bn of foreign net selling, after receiving US$19bn of buying since the April low; emerging Asia excluding China recently saw US$113bn of net selling, after receiving US$16bn of buying since the March low. Year to date in 2026, emerging Asia excluding China has recorded cumulative foreign outflows of US$173.2bn, including US$109.6bn from Korea, US$35.9bn from Taiwan, and US$23.5bn from India. Japan received US$60.6bn of inflows, while Southbound flows totaled US$47.6bn. Non-Asian emerging markets received a cumulative US$5.0bn in 2026, driven mainly by US$2.9bn for Brazil and US$1.3bn for Türkiye. Global equity funds continued to receive net subscriptions, but at a markedly slower pace than the previous week. Global equity funds received US$9.2bn this week, down from US$40.1bn last week. Among developed markets, US funds saw US$4.4bn of outflows, Europe saw US$0.2bn of outflows, and Japan received US$2.7bn of inflows. In emerging markets, GEM funds received US$2.3bn, bringing year-to-date inflows to US$63bn, while Asia ex-Japan funds recorded US$2.0bn of outflows. Including single-country funds, emerging-market funds received a combined US$93.4bn over the past eight weeks, driven mainly by US$44.2bn for China, US$18.3bn for Korea, and US$16.6bn for Taiwan; GEM funds received US$16.2bn over the same period. The report believes the annual buying pace for GEM funds is the fastest in the past two decades, while emerging-market ex-China funds have received cumulative inflows of US$27bn since 2019. Fund performance recovered following the July drawdown. Emerging-market and Asian funds gained an average of about 5% in August, while China-focused funds rose 4%. About 60% of the largest emerging-market funds and 70% of Asian funds outperformed their respective benchmarks, above the 55% to 65% average range over the past decade. These statistics use the top 200 emerging-market funds, top 100 Asian funds, and top 350 China funds selected by the latest available assets under management and compare them against emerging-market, Asia ex-Japan, or China indices, respectively. Holdings data at the end of July indicate that improved fund performance did not imply consistent allocations across markets. Relative to their benchmarks, Asian active funds were most overweight China, Singapore, and Hong Kong and most underweight Taiwan and India. They increased exposure to Korea in July while reducing exposure to Taiwan and Indonesia. GEM active funds were most overweight Brazil and Mexico and most underweight Taiwan and Korea, with Taiwan seeing the largest reduction in exposure over both the past one and three months. At the sector level, funds were most overweight China Industrials and Brazil Energy and most underweight North Asia technology hardware and semiconductors, as well as China and Taiwan banks. Taiwan technology saw the largest allocation cuts over both the past one and three months. The holdings analysis is based on the top 350 active Asia ex-Japan and emerging-market funds as of July 2026, and subsequent fund reporting may lead to revisions. Southbound flows recorded net inflows of US$1.2bn this week, bringing the 2026 year-to-date total to about US$48bn. Major weekly purchases included Tracker Fund of Hong Kong, Alibaba, Tencent, MiniMax, Yangtze Optical Fibre and Cable, Meituan, Xiaomi, WuXi Biologics, Ping An Insurance, and CSOP Hang Seng TECH. Major sales included SMIC at US$156mn, Kingboard Laminates at US$133mn, Hua Hong Semiconductor at US$121mn, Zhipu at US$84mn, Innovent Biologics at US$67mn, Pop Mart at US$54mn, GigaDevice H-shares at US$49mn, CNOOC at US$19mn, and CIG Shanghai H-shares at US$8mn. Securities with the highest value of Southbound holdings included Tencent at US$60,637mn, China Construction Bank H-shares at US$42,733mn, ICBC H-shares at US$34,318mn, CNOOC at US$34,082mn, HSBC Holdings at US$31,916mn, China Mobile at US$29,512mn, Alibaba at US$29,051mn, SMIC at US$21,696mn, Bank of China H-shares at US$20,850mn, and Xiaomi at US$17,637mn. Kingboard Laminates recorded the largest decline in Southbound ownership over the past week, falling by 4.5% of free float. As the Hong Kong Stock Exchange no longer discloses aggregate Northbound purchases and sales or individual-stock trading data, Northbound analysis is now primarily limited to turnover information. Retail and leverage indicators suggest that localized volatility could be amplified. Taiwan retail investors sold US$3.8bn this week, while Korean retail flows were relatively muted. However, Asian markets have still received cumulative retail inflows of US$65bn year to date. Assets under management in Korean leveraged ETFs rose to US$24bn, while Taiwan's stood at about US$13bn, equivalent to approximately 0.9% and 0.4% of free-float market capitalization, respectively. The report notes that daily rebalancing flows may amplify intraday volatility, particularly in Korea. The absolute value of North Asian margin balances has reached an all-time high, although the ratio to free-float market capitalization remains moderate, and regulatory and margin restrictions also constrain further expansion. FTSE Russell announced the indicative results of its GEIS semiannual review after the market close on August 21. Changes may still be revised before September 4 and will be implemented after the market close on September 18. Goldman Sachs estimates that the rebalancing will generate more than US$10bn of gross two-way flows in emerging markets, including approximately US$3.8bn of passive net inflows. The estimates are as of August 27, 2026, and cover ETFs and mutual funds tracking FTSE broad-market and local-market benchmarks; therefore, the final outcome will depend on revisions to the index constituent lists and the actual amount of assets tracking them.

Analysis framework

The report first aggregates weekly, monthly, and year-to-date flows by foreign investors, domestic institutions, retail investors, and Stock Connect channels, then compares subscriptions, redemptions, and performance across global, GEM, Asia ex-Japan, and single-country equity funds. It subsequently uses final EPFR data to compare active fund holdings with their respective benchmarks, identifying country and sector overweights, underweights, and allocation changes over the past one to three months. Finally, the report combines the indicative FTSE GEIS changes, passively tracked assets, and free-float market capitalization to estimate potential rebalancing flows, while using leveraged ETFs, margin balances, and regional risk barometers to assess near-term market risk.

Methodology notes

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

  Multi-channel equity fund-flow monitoring

  The report separately tracks inflows and outflows from foreign institutions, domestic institutions, retail investors, Southbound Stock Connect, and active and passive funds to identify the trading direction of different investor groups and variations across markets.

• Quantitative/Factor/Portfolio Theory

  Benchmark-relative mutual fund holdings analysis

  The report compares active funds' country and sector allocations with the corresponding index weights, using overweights and underweights to represent active exposures relative to the benchmark and examining changes over one and three months.

• Quantitative/Factor/Portfolio Theory

  Benchmark-relative performance statistics for a sample of large funds

  The report selects the top 200 emerging-market funds, top 100 Asian funds, and top 350 China funds based on the latest available assets under management, then calculates their average performance and the proportion outperforming the corresponding benchmarks.

• Event-Driven Trading and Behavioral FinanceEvent-driven analysis

  Passive flow estimates for FTSE index rebalancing

  Based on current and post-rebalancing index weights, free-float factors, and passive assets tracking the relevant benchmarks, the report estimates the gross trading and net passive inflows that may occur around the September 18 index implementation.

• Quantitative/Factor/Portfolio Theory

  Analysis of leverage relative to free-float market capitalization

  The report compares leveraged ETF and margin balances in Korea and Taiwan with free-float market capitalization to assess the extent to which daily rebalancing trades may amplify market volatility.

Asset mapping & comparison

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

• Taiwan equities

  Received foreign net buying in August and over the latest week, but retail investors sold and active funds remained underweight and continued to reduce exposure.

  Strengths

  Foreign inflows totaled US$9.5bn in August and US$3.7bn this week; domestic institutional inflows totaled US$0.7bn this week.

  Weaknesses

  Retail investors sold US$3.8bn this week; both Asian and GEM funds were underweight Taiwan, which saw the largest exposure reductions over the past one and three months.

  Comparison

  Led the regional markets covered by the report in foreign buying during August.

  Risks

  Leveraged ETF assets total about US$13bn, equivalent to approximately 0.4% of free-float market capitalization, and rebalancing trades may affect near-term volatility.

• Indian equities

  Received support from both foreign and domestic capital in August, although cumulative foreign flows in 2026 remain negative.

  Strengths

  Foreign inflows totaled US$3bn and domestic buying totaled US$5bn in August; domestic institutions have purchased a cumulative US$59bn in 2026.

  Weaknesses

  Foreign investors have withdrawn a cumulative US$23.5bn year to date in 2026, and Asian active funds are underweight India relative to their benchmarks.

  Comparison

  Domestic institutional buying was the most concentrated among Asian markets.

  Risks

  The report does not identify asset-specific risks for India.

• Korean equities

  Foreign investors continued to sell significantly, although Asian funds increased their allocation to Korea in July.

  Strengths

  Asian funds increased their exposure to Korea relative to their benchmarks in July.

  Weaknesses

  Foreign outflows totaled US$8.8bn in August, US$6.3bn this week, and US$109.6bn year to date in 2026; GEM funds remain underweight Korea.

  Comparison

  Korea faced the greatest foreign selling pressure in August, this week, and year to date in 2026.

  Risks

  Leveraged ETF assets total US$24bn, equivalent to about 0.9% of free-float market capitalization, and daily rebalancing may significantly amplify intraday volatility.

• Hong Kong equities and Southbound Stock Connect

  Mainland investors continued to make net purchases of Hong Kong-listed equities through Southbound Stock Connect.

  Strengths

  Southbound net inflows totaled US$1.2bn this week and about US$48bn year to date in 2026; Asian active funds are overweight Hong Kong relative to their benchmarks.

  Weaknesses

  Some semiconductor, biotechnology, and consumer stocks experienced Southbound net selling, while Kingboard Laminates' ownership ratio fell by 4.5 percentage points in one week.

  Comparison

  Among Asian flows in 2026, Southbound buying was second only to the foreign inflows received by Japan.

  Risks

  Flows are highly concentrated in individual stocks, and weekly changes in holdings may cause significant divergence.

• GEM equity funds

  Continued to receive inflows and recorded a performance recovery following the July drawdown.

  Strengths

  Received US$2.3bn this week and US$63bn year to date; the annual buying pace is the fastest in the past two decades.

  Weaknesses

  Underweight North Asian technology hardware and semiconductors, as well as China and Taiwan banks, at the sector level.

  Comparison

  GEM funds received inflows this week, while Asia ex-Japan funds recorded US$2.0bn of outflows.

  Risks

  Holdings results are based on active fund reporting data and may be revised as additional reports are submitted.

• FTSE emerging-market index constituent assets

  The September semiannual rebalancing is expected to trigger large-scale passive rebalancing trades.

  Strengths

  Passive net inflows are estimated at US$3.8bn.

  Weaknesses

  More than US$10bn of gross two-way flows means that different constituent assets may simultaneously face substantial buying and selling.

  Comparison

  The impact spans multiple emerging markets rather than being concentrated in a single country.

  Risks

  The indicative results may still be revised before September 4, and final flows will also depend on the actual assets tracking the indices.

Key data

• Taiwan foreign flows in August+US$9.5bnHighest foreign buying among regional markets in August
• India foreign flows in August+US$3bnForeign net buying in August
• Korea foreign flows in August-US$8.8bnHighest foreign selling among regional markets in August
• Foreign flows into emerging Asia excluding China this week-US$2.5bnKorea recorded US$6.3bn of outflows, while Taiwan received US$3.7bn of inflows
• Indian domestic buying in August+US$5bnRegional domestic buying in August was concentrated mainly in India
• Emerging-market and Asian fund performance in AugustAbout +5%Monthly rebound following the July drawdown
• China-focused fund performance in August+4%Monthly rebound following the July drawdown
• Proportion of funds outperforming their benchmarksAbout 60% for emerging markets and about 70% for AsiaAbove the 55% to 65% average range over the past decade
• Weekly inflows into global equity funds+US$9.2bn+US$40.1bn last week
• Weekly inflows into GEM funds+US$2.3bnCumulative year-to-date inflows of US$63bn
• Emerging-market fund inflows over the past eight weeksUS$93.4bnChina, Korea, and Taiwan contributed US$44.2bn, US$18.3bn, and US$16.6bn, respectively
• Weekly Southbound inflows+US$1.2bnAbout +US$48bn year to date in 2026
• Year-to-date Asian retail inflowsUS$65bnTaiwan retail investors sold US$3.8bn this week
• North Asian leveraged ETF assetsUS$24bn in Korea and about US$13bn in TaiwanEquivalent to about 0.9% and 0.4% of free-float market capitalization, respectively
• Estimated gross two-way flows from FTSE rebalancingMore than US$10bnEstimated passive net inflows of US$3.8bn

Impact & implications

The report argues that the near-term emerging-market funding environment cannot be characterized by a single direction. Foreign buying in Taiwan and India in August, Indian domestic capital, and GEM fund subscriptions provide support, but continued substantial foreign outflows from Korea, redemptions from Asia ex-Japan funds, and fund underweights in Taiwan and North Asian technology show that structural divergence remains pronounced. The September FTSE rebalancing may generate significant passive trading, while Korea's relatively high leveraged ETF exposure could make intraday volatility more sensitive.

Risks

• The indicative FTSE GEIS rebalancing results may still be revised before September 4, 2026, so the estimated passive flows are not final.
• Daily rebalancing by leveraged ETFs in Korea and Taiwan may amplify intraday volatility, with the report specifically highlighting Korea's greater sensitivity.
• Fund holdings are based on active fund reporting data as of the end of July 2026 and may be revised as additional fund data are submitted.
• The Hong Kong Stock Exchange no longer discloses aggregate Northbound purchases and sales or individual-stock trading data, limiting the completeness of Northbound flow analysis.

What to watch

• Monitor whether the FTSE GEIS rebalancing list is revised before September 4, 2026.
• Monitor the implementation of the FTSE index changes after the market close on September 18, 2026, and the expected gross two-way trading of more than US$10bn.
• Track whether foreign selling in Korea continues and whether daily rebalancing by leveraged ETFs amplifies intraday volatility.
• Track whether foreign buying in Taiwan persists and whether retail selling and active fund exposure reductions ease.
• Monitor subsequent EPFR submissions for revisions to the country and sector overweight and underweight conclusions as of the end of July.