Foreign capital outflow from Korea and Taiwan reached about US$10bn each this week, with tech selling coexisting with high EM positioning

Overview

This report tracks global, emerging market, and Asian equity flows, Stock Connect flows, hedge fund positioning, mutual fund allocation, retail flows, and leverage indicators. The core conclusion is that Korea and Taiwan saw significant foreign outflows amid a global tech sell-off, and global equity funds turned to net outflows; however, southbound funds continued buying Hong Kong stocks, while mutual funds increased allocations to China and India, supporting some markets.

Core views

First, foreign institutional flows created clear pressure on Emerging Asia ex-China, with Taiwan and Korea being the main markets sold this week. Second, global equity fund flows swung from heavy inflows last week to outflows, indicating marginal cooling in risk appetite. Third, China-related assets showed divergence: southbound flows remained positive and mutual funds increased China allocations, but China fund outflows over the past 8 weeks were still the main driver of total EM outflows. Fourth, hedge funds and mutual funds remain at relatively high positioning percentiles in some Asian markets, so if tech volatility persists, elevated positioning may amplify drawdowns. Fifth, retail buying and rising leverage in North Asia support trading in the short term, but also increase intraday volatility risk.

Analysis framework

The report uses high-frequency flow data as its main thread, breaking down foreign institutions, domestic institutions, Stock Connect, global equity funds, hedge funds, mutual funds, and retail investors by source of funds; it also cross-checks risk appetite, crowding, and marginal allocation changes across regions, countries, sectors, and positioning percentiles.

Methodology notes

• Flow TrackingForeign Institutional and Domestic Institutional Flows

  Net buying and selling of local equities by foreign institutions and domestic institutions are measured by market.

  Foreign institutional flows are used to judge overseas investor risk appetite, while domestic institutional flows help identify whether local capital is offsetting or reinforcing the foreign direction.

• Stock Connect FlowsSouthbound and Northbound Flows

  Tracks mainland investors' purchases of Hong Kong stocks and related trading activity through the Hong Kong channel.

  Southbound flows represent mainland demand for Hong Kong equity exposure; this week's net inflow and year-to-date inflow scale are used to gauge marginal support for Hong Kong equities.

• Fund Flows and PositioningEPFR Fund Flows and Active Fund Allocation

  Based on fund flows and active mutual fund holdings, compares country and sector overweights/underweights versus benchmark and their changes.

  The report uses final end-May EPFR data to identify the most overweight and underweight markets for mutual funds, as well as allocation changes over the past 1 month and 3 months.

• Hedge Fund PositioningLong/Short Equity Positioning and Leverage Indicators

  Observes the levels and historical percentiles of gross exposure, net exposure, gross leverage, and net leverage.

  High positioning percentiles indicate elevated crowding, which may amplify market reactions when volatility or selling flows emerge.

• Retail and Risk SentimentRetail Flows, Margin Balance, and Equity Risk Barometer

  Uses retail net buying, leveraged ETF size, margin balances, and regional equity risk indicators to measure local risk appetite.

  Retail buying can cushion foreign selling pressure, but rising margin balances and leveraged ETFs increase the risk of amplified volatility.

Asset mapping & comparison

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

• Emerging Asia ex-China equities

  The region with the most concentrated net foreign selling this week.

  Strengths

  Some markets still have support from retail buying and prior cumulative inflows from mutual funds.

  Weaknesses

  Weekly net foreign outflows reached US$22.1bn, with Taiwan and Korea contributing the main selling pressure.

  Comparison

  Among developed markets, US funds also saw sizable net selling, indicating risk appetite is cooling beyond just Asia.

  Risks

  If the tech sell-off continues, highly positioned markets may continue to face deleveraging pressure.

• Korean equities

  One of the core markets for foreign outflows and reduced allocations to technology hardware/semiconductors.

  Strengths

  Retail investors bought US$6.4bn this week, partially offsetting foreign selling pressure; hedge fund positioning remains near historical highs.

  Weaknesses

  Net foreign outflows were US$10.4bn this week, and year-to-date foreign outflows in 2026 totaled US$87.3bn; mutual funds cut Korea by 80bp over the past month.

  Comparison

  Among Asian markets, Korea has seen the largest scale of foreign selling year to date.

  Risks

  Korea's leveraged ETF asset size is high, and intraday rebalancing may amplify volatility; technology hardware and semiconductors still face further reduction risk.

• Taiwan equities

  The market with the largest foreign selling this week and still significantly underweight in mutual funds.

  Strengths

  Retail investors bought US$8.1bn this week; EM funds have recorded cumulative inflows of US$12.0bn into Taiwan over the past 8 weeks.

  Weaknesses

  Net foreign outflows were US$11.3bn this week; active EM funds are 325bp underweight Taiwan relative to benchmark.

  Comparison

  Taiwan's mutual fund underweight is larger than Korea's and India's, though allocation rose modestly by 20bp over the past month.

  Risks

  Underweight positions in technology hardware and semiconductors, together with global AI/tech volatility, may continue to weigh on investor preference.

• China and Hong Kong equities

  Increased mutual fund allocation, southbound inflows, and fund outflows over the past 8 weeks are occurring simultaneously.

  Strengths

  Southbound flows recorded net inflows of US$1.1bn this week and US$39.1bn year to date; mutual funds increased China allocation by 90bp over the past month.

  Weaknesses

  China-related funds saw US$86.9bn of outflows over the past 8 weeks, the main source of total EM fund outflows; hedge fund net exposure to China fell to 7.9%.

  Comparison

  Among Asian active funds, China remains one of the most overweight markets, but flow direction is diverging in the short term.

  Risks

  If existing fund redemptions continue, southbound flows and active reallocation may not be enough to fully offset outflow pressure.

• Indian equities

  Mutual funds marginally increased allocation, but foreign capital still showed year-to-date outflows.

  Strengths

  Mutual funds increased India allocation by 30bp over the past month; domestic institutions in India bought US$49bn in 2026.

  Weaknesses

  Foreign capital recorded net outflows of US$29.2bn year to date in 2026; EM funds saw US$2.2bn of outflows from India over the past 8 weeks.

  Comparison

  India has support from local capital, but foreign flow direction is weaker than in non-Asian emerging markets such as Brazil.

  Risks

  If foreign outflows persist, valuation and the absorption capacity of local capital will become key constraints.

• Brazilian and Mexican equities

  The most overweight markets in active EM funds, but short-term non-Asian EM fund flows are weak.

  Strengths

  Mutual funds are overweight Brazil by 265bp and Mexico by 65bp; Brazil has received cumulative foreign inflows of US$6.3bn in 2026.

  Weaknesses

  Non-Asian EM markets saw net outflows of US$0.8bn this week, including US$0.6bn from Brazil; mutual funds cut Brazil by 40bp over the past month.

  Comparison

  Compared with Korea and Taiwan, Brazil still has year-to-date foreign inflows, but marginal fund flows have weakened.

  Risks

  If Latin American fund flows continue to weaken, overweight positions may face profit-taking pressure.

• Key Hong Kong stocks favored in southbound trading

  Southbound flows reflect mainland investors' structural preference for Hong Kong stocks.

  Strengths

  This week's southbound buying was concentrated in 0148.HK Kingboard, 0981.HK SMIC, 1888.HK Kingboard Laminates, and 2800.HK The Tracker Fund of Hong Kong.

  Weaknesses

  Southbound selling was concentrated in 9988.HK Alibaba Group, 0700.HK Tencent, 6869.HK Yangtze Optical Fibre & Cable (H), and 1810.HK Xiaomi.

  Comparison

  Buying was more tilted toward hard tech, semiconductors, and ETFs, while selling concentrated in large internet names and some industrial stocks.

  Risks

  Concentrated southbound trading at the single-stock level may amplify short-term liquidity and volatility.

Key data

• Weekly foreign outflow from Emerging Asia ex-China-US$22.1bnMainly driven by Taiwan (-US$11.3bn) and Korea (-US$10.4bn).
• Weekly foreign outflow from non-Asian emerging markets-US$0.8bnMainly driven by Brazil (-US$0.6bn).
• Weekly and year-to-date southbound inflows+US$1.1bn；year-to-date +US$39.1bnSouthbound flows represent mainland investors buying Hong Kong stocks.
• Weekly global equity fund flow-US$5bnLast week saw net inflows of US$126bn; this week US funds - US$8.5bn, Europe - US$1.3bn, Japan +US$0.5bn.
• Weekly and year-to-date global emerging market fund flowsweekly - US$0.5bn；year-to-date about +US$49bnOutflows have appeared recently, but cumulative flows remain positive year to date.
• Total EM fund outflows over the past 8 weeks-US$84.5bnMainly caused by China-related fund outflows of - US$86.9bn; over the same period Taiwan +US$12.0bn and Korea +US$5.6bn.
• Hedge fund positioning in China equitiesnet exposure 7.9%；gross exposure 7.8%Net exposure is at the 41st percentile over five years, while gross exposure is at the 96th percentile over five years, indicating total exposure remains high.
• Leverage of Asia fundamental long/short managersgross leverage 187.6%；net leverage 57.0%Gross leverage fell to the 1st percentile over 1 year and the 59th percentile over 5 years; net leverage is at the 75th percentile over 5 years.
• Mutual fund country allocationMost overweight Brazil +265bp, Mexico +65bp; most underweight Taiwan -325bp, India -205bp, Korea -195bpBased on active emerging market fund allocations as of end-May 2026.
• Mutual fund allocation changes over the past 1 monthChina +90bp, India +30bp; Korea -80bp, Brazil -40bpShows active funds marginally increased allocations to China and India, while reducing Korea and Brazil.
• Mutual fund sector allocationOverweight China Industrials +165bp; underweight Taiwan Technology Hardware and Semiconductors -165bp, China Banks -135bpOver the past month Korea Industrials +30bp, China Banks +15bp; Korea Technology Hardware and Semiconductors -35bp.
• Retail fund flowsTaiwan +US$8.1bn, Korea +US$6.4bn; Asia year-to-date +US$54bnRetail buying moved opposite to foreign selling and may cushion short-term pressure.
• North Asia leverage indicatorsKorea leveraged ETF AUM US$42bn, Taiwan about US$11bnKorean leveraged ETFs account for about 1.4% of free-float market cap, versus about 0.3% in Taiwan; margin balance levels are at record highs in absolute terms.

Impact & implications

The flow signals are cautious on the Asian tech chain and North Asian markets: large foreign selling in Korea and Taiwan is corroborated by mutual fund cuts to technology hardware and semiconductors, suggesting global tech volatility is still transmitting. Signals for China and Hong Kong are more mixed: southbound inflows and increased mutual fund allocations provide support, but heavy China fund outflows over the past 8 weeks indicate that redemption pressure has not been fully absorbed. Overall, high positioning, high leverage, and rising retail activity increase market sensitivity to macro, earnings, or liquidity shocks.

Risks

• If large foreign outflows from Korea and Taiwan continue, they may keep pressuring North Asia's tech chain and semiconductor-related stocks.
• Hedge fund positioning in China, Korea, and Taiwan remains at relatively high percentiles, and crowded trades may trigger rapid deleveraging as volatility rises.
• Global equity funds have shifted from large inflows to outflows, signaling cooling risk appetite that may affect emerging market equity valuations.
• North Asia's leveraged ETF size and margin balances are high, especially in Korea, where intraday rebalancing may amplify volatility.
• China-related funds have seen heavy outflows over the past 8 weeks; if redemption pressure persists, support from southbound flows and active mutual fund allocation increases may be limited.
• Some data rely on fund filings, exchange disclosures, and modeled risk indicators, which carry risks of lag, revision, or changes in disclosure methodology.

What to watch

• Whether foreign outflows from Korea and Taiwan converge next week, especially flows related to technology hardware and semiconductors.
• Whether southbound flows can sustain strong year-to-date inflows, and whether buying/selling remains concentrated in a handful of Hong Kong stocks.
• Whether mutual funds continue increasing allocations to China and India in the next update, or instead reduce total emerging market exposure.
• Whether hedge fund gross exposure, net exposure, and leverage among Asian long/short managers fall further from high percentiles.
• Changes in retail buying, margin balances, and leveraged ETF AUM in North Asia, especially the risk of amplified intraday volatility in Korea.
• Whether fund flows into US, Europe, Japan, GEM, and Asia ex-Japan global equity funds deteriorate in sync.