EM Asia ex-China sees record-level foreign outflows, while MSCI rebalancing may trigger massive two-way flows

Overview

This report is Goldman Sachs' weekly tracking of emerging markets, especially EM Asia ex-China fund flows, institutional and retail flows, southbound flows, global equity fund flows, and the impact of MSCI's May 2026 index rebalancing. The core conclusion is that EM Asia ex-China saw roughly US$17bn of foreign outflows in a single week, the second-largest weekly selling on record, with Korea and Taiwan the main drags; meanwhile, local retail investors in Korea bought heavily, offsetting part of the foreign selling pressure.

Core views

First, short-term foreign flows into EM Asia ex-China weakened materially, with about US$16.9bn to US$17bn of outflows this week, including about -US$13.2bn from Korea and -US$2.5bn from Taiwan. Second, foreign investors have recently sold a net US$29bn in EM ex-China, showing that the US$19bn of buying since the April low has been reversed. Third, local funds have provided an offset in some markets, with Korean retail investors buying about US$14.1bn this week and retail inflows across Asia totaling about US$27bn year to date. Fourth, MSCI's May rebalance will drive significant passive reallocation; APAC core indexes are expected to generate more than US$76bn of total two-way flows, while Taiwan, Korea, South Africa, and Saudi Arabia are expected to see large passive inflows, and Indonesia, India, China, Mexico, and Turkey are expected to face larger outflows.

Analysis framework

The report focuses on weekly flow monitoring, combining foreign institutional investor flows, local institutional and retail flows, southbound flows, global and regional equity fund flows, and passive flow estimates from MSCI index rebalancing to compare inflow and outflow pressure across countries, regions, and sectors. Data sources include Bloomberg, AMFI, TEJ, FactSet, MSCI, and fund AUM data.

Methodology notes

• fund_flow_trackingFII flows and domestic retail flows monitoring

  Comparison of foreign institutional investor flows and domestic retail flows

  By comparing foreign net buying/selling with local investor buying/selling, the report assesses whether market pressure is being absorbed by domestic funds. In this report, Korea's large foreign selling but heavy retail buying is a key offset signal.

• index_rebalancingMSCI Global Investable Market Indexes review flow analysis

  Estimation of passive flows from index rebalancing

  Based on changes in MSCI index constituents and weights, the report estimates the total two-way flow and net passive flow from passive funds before and after the rebalance takes effect, helping identify markets and sectors that may benefit or come under pressure.

• regional_fund_flowGlobal equity mutual fund flows

  Global equity mutual fund flows

  By observing weekly subscription/redemption flows in global, developed-market, emerging-market, and country funds, the report gauges cross-regional risk appetite and capital reallocation trends.

Asset mapping & comparison

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

• EM Asia ex-China equities

  Core tracking asset

  Strengths

  Some markets have domestic retail support, with particularly strong retail inflows in Korea.

  Weaknesses

  Foreign outflows were about US$17bn this week, the second-highest weekly selling on record, putting short-term pressure on funding conditions.

  Comparison

  Compared with roughly US$620mn of weekly selling in non-Asia emerging markets, the foreign outflow from EM Asia ex-China was much larger.

  Risks

  If foreign outflows continue, valuations and liquidity may remain under pressure.

• Korea equities

  Main outflow and retail absorption market

  Strengths

  Domestic retail investors bought about US$14.1bn this week, providing clear support.

  Weaknesses

  Foreign outflows of about US$13.2bn this week were the largest source of regional selling pressure.

  Comparison

  In the MSCI rebalance, Korea is expected to be one of the EM markets receiving larger passive inflows.

  Risks

  If foreign selling pressure persists, the durability of retail absorption will need to be watched.

• Taiwan equities

  Market with both foreign outflows and MSCI passive inflows

  Strengths

  MSCI rebalancing is expected to make Taiwan one of the EM markets with larger passive inflows.

  Weaknesses

  Foreign outflows were about US$2.5bn this week, and retail investors also sold about US$0.8bn.

  Comparison

  Unlike Korea, Taiwan did not show clear retail absorption this week.

  Risks

  Foreign and retail outflows together could amplify short-term volatility.

• China equities

  Potential passive outflow market from MSCI rebalancing

  Strengths

  Southbound inflows still came in at about US$1.2bn this week, or about US$37bn year to date.

  Weaknesses

  China is expected to be one of the larger passive outflow markets in the MSCI rebalance.

  Comparison

  In contrast to expected passive inflows for Taiwan and Korea, China faces rebalance-related passive outflow pressure.

  Risks

  Passive outflows combined with weaker foreign risk appetite could weigh on short-term funding conditions.

• Global equity funds

  Global risk appetite indicator

  Strengths

  Global equity funds saw about US$21bn of inflows this week, with notable inflows into U.S. and Japan funds.

  Weaknesses

  European funds saw outflows of about US$1.5bn, and key GEM funds saw outflows of about US$2.6bn this week.

  Comparison

  U.S. inflows among developed markets were stronger than in parts of emerging markets and Europe.

  Risks

  If global funds continue to favor the U.S., EM funding recovery may be limited.

• MSCI INC

  Entity related to index data and rebalancing analysis

  Strengths

  MSCI index rebalancing is the core input for passive flow estimates.

  Weaknesses

  The report cites MSCI data and notes related intellectual property and usage restrictions.

  Comparison

  MSCI rebalancing affects passive index flows rather than active investment recommendations.

  Risks

  Actual flows may differ from estimates due to tracking error, fund execution pace, liquidity, and market conditions.

Key data

• Foreign outflows from EM Asia ex-China this weekAbout US$17bnThe second-largest weekly foreign selling on record, driven mainly by Korea and Taiwan.
• Foreign outflows from Korea this week-US$13.2bnThe largest source of foreign outflows in EM Asia ex-China this week.
• Foreign outflows from Taiwan this week-US$2.5bnOne of the main foreign outflow markets this week.
• Recent foreign net selling in EM ex-ChinaUS$29bnIt had previously seen net buying of US$19bn since the April low.
• Recent foreign net selling in EM Asia ex-ChinaUS$26bnIt had previously seen net buying of US$16bn since the March low.
• Korea retail buying this week+US$14.1bnDomestic retail buying offset foreign selling pressure.
• Retail inflows into Asia year to dateUS$27bnShows that local retail funds are still providing support.
• Southbound inflows this week+US$1.2bnYear to date southbound inflows are about US$37bn.
• MSCI rebalance total two-way flows for APAC core indexesMore than US$76bnThe rebalance is expected to take effect after the May 29 close.
• MSCI rebalance total two-way flows for GEM core indexesAbout US$44bnExpected GEM net passive flow is about -US$500mn.
• Global equity fund inflows this weekUS$21bnAbove last week's inflow of about US$3bn.
• Net buying by U.S. funds this weekUS$21.9bnU.S. inflows were significant among developed markets.
• Outflows from key GEM funds this weekUS$2.6bnBut GEM funds still saw about US$57bn of inflows year to date.
• Non-Asia emerging market selling this weekUS$620mnMainly driven by Brazil at about -US$420mn.

Impact & implications

In the near term, the large foreign outflow from EM Asia ex-China reflects weaker overseas risk appetite or reallocation pressure, with Korea and Taiwan hit most clearly; however, the large buying by Korean retail investors shows that local funds can still provide some market buffer. In the medium term, MSCI's May rebalance may trigger large passive trading in APAC and GEM markets, with Taiwan, Korea, South Africa, and Saudi Arabia likely to benefit from passive inflows, while Indonesia, India, China, Mexico, and Turkey may face passive outflow pressure. At the sector level, technology hardware and semiconductors, as well as metals and mining, may receive larger passive inflows, while capital goods, consumer retail, and services may come under pressure.

Risks

• Foreign outflows may continue, further pressuring funding conditions and sentiment in EM Asia ex-China.
• Although retail buying in Korea is offsetting foreign selling in the short term, its durability and risk tolerance remain uncertain.
• Passive flows from MSCI rebalancing may magnify stock, sector, and market volatility around the effective date.
• Passive flow estimates depend on index weights, prices, free float, and fund tracking size, so actual trading may differ from estimates.
• This report is a flow and thematic study and does not constitute independent stock-specific investment advice, and past flows do not predict future performance.

What to watch

• Watch whether foreign outflows from EM Asia ex-China evolve from a one-week shock into a sustained trend.
• Track whether domestic retail buying in Korea continues to offset foreign selling pressure.
• Focus on passive trading and market impact before and after MSCI rebalancing takes effect after the May 29 close.
• Pay close attention to the passive inflows into Taiwan, Korea, South Africa, and Saudi Arabia, and the passive outflows from Indonesia, India, China, Mexico, and Turkey.
• Compare whether global equity funds continue to flow into the U.S. and Japan while withdrawing from GEM funds.
• Monitor whether southbound flows continue the year-to-date inflow trend.