Asia/EM equity flows and positioning guide: sizable foreign outflows in March, with Korea and Brazil still the key long overweight positions

Overview

This report is Morgan Stanley's monthly guide to Asia emerging-market equity flows and positioning, focusing on changes since March in ETF/mutual fund flows, exchange foreign flows, and hedge fund positioning. The report notes that Asia and emerging markets saw pronounced foreign outflows in March, with active foreign funds net selling emerging-market equities and passive inflows slowing sharply; exchange data likewise show foreign net selling across Taiwan, Korea, Japan, India, and Indonesia. At the same time, GEM long-only positioning still shows Brazil and Korea as the main overweight markets, while India and Taiwan ex-TSMC remain underweighted.

Core views

The core views are: first, the funding backdrop weakened materially in March, with both active and passive foreign funds moving away from, or close to moving away from, Chinese equities, while outflows from domestic passive funds continued; second, exchange-disclosed data show that foreign selling pressure in Asia's major markets was concentrated in Taiwan, Korea, Japan, and India; third, hedge funds began cutting gross exposure in the fourth week of March, with Korea and China A-shares driving the decline in directional exposure, and technology/semiconductor outflows driven by both long de-risking and increased shorts; fourth, after ceasefire news, the strategy team expects possible re-engagement and a rebound, with Japan, Korea, Taiwan, and other high-beta emerging markets potentially leading the advance.

Analysis framework

The report cross-checks multiple flow and positioning lenses: EPFR is used to measure ETF/mutual fund net flows, country flows, and long-only fund allocation; stock exchange disclosures are used to track foreign buying and selling in major Asian markets; Prime Brokerage observations are used to analyze hedge fund gross exposure reductions and sector flows; and FactSet/Morningstar fund samples are used to estimate active fund holdings in GEM and Japan equities.

Methodology notes

• Flow data databaseEPFR Fund Flows Database

  Fund net flows

  This measure computes net flows by fund and fund category as investor subscriptions less redemptions, covering dedicated emerging-market funds such as GEM, EM Asia, LatAm, and EMEA. The weekly net flow figures in the report equal the weekly change in assets minus the weekly change in portfolio market value.

• Country flow databaseEPFR Country Flows Database

  Country-level equity market flows

  This measure combines fund flows and country weights to estimate cash flows into or out of each country's equity market, and its coverage is broader than the dedicated fund flow measure; for example, China flows can come from Global, GEM, Asia ex Japan, BRIC, Pacific Region, Greater China, and dedicated China funds.

• Exchange disclosuresStock Exchanges Foreign Investor Flows

  Foreign investor trading flow disclosures

  The report uses foreign buying and selling data disclosed by major stock exchanges to supplement the EPFR framework, and notes that the exchange data may differ from EPFR because the coverage universes are not identical.

• Fund holdings estimationFactSet/Morningstar Active Fund Universe

  Active fund composite portfolio

  For GEM analysis, the sample selects the 40 largest active U.S. and SICAV funds in Morningstar's Emerging Markets Equity category; for Japan analysis, the composite is built from the largest active funds in the Global Equity, Japan Equity, and Asia Pacific Equity categories. The report emphasizes that not all funds disclose month-end holdings, so the estimates are market-indicative rather than complete factual disclosures.

Asset mapping & comparison

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

• Asia/emerging-market equities

  Core research object

  Strengths

  If risk events ease, the report expects renewed participation and a rebound, with high-beta emerging markets likely to show strong upside elasticity.

  Weaknesses

  Foreign outflows have been significant since March, passive inflows have slowed sharply, and active foreign funds have been net sellers.

  Comparison

  EPFR, exchange, and Prime Brokerage measures all point to weaker funding conditions in March, although their coverage universes differ.

  Risks

  Continued foreign selling pressure, renewed geopolitical risk, crowded technology/semiconductor positioning, and liquidity pullback.

• Korean equities

  A GEM long-only overweight market and one of the main recent hedge-fund de-risking targets

  Strengths

  As of end-February, Korea remained one of the most overweight markets for GEM long-only investors, and names such as SK Hynix, SK Square, and Samsung Electronics appeared on the overweight list.

  Weaknesses

  Foreign investors net sold Korea equities by US$23.6bn from early March to early April, and Korea was a major driver of the decline in directional exposure.

  Comparison

  Korea is more favored than India and Taiwan ex-TSMC within long-only positioning.

  Risks

  Technology/semiconductor outflows, foreign selling pressure, and further hedge-fund de-risking.

• Taiwanese equities

  An important Asian market with semiconductor exposure

  Strengths

  The report expects Taiwan to participate in any rebound if risks ease.

  Weaknesses

  Foreign investors net sold Taiwan equities by US$29.3bn from early March to early April; excluding TSMC, Taiwan is one of the most underallocated markets.

  Comparison

  The scale of foreign selling was the largest among the markets listed and is highly tied to technology/semiconductor outflows.

  Risks

  Crowded semiconductor positioning, continued foreign selling, and changes in passive flow trends.

• Indian equities

  One of the underallocated emerging markets

  Strengths

  India remains an important market covered by Morgan Stanley's recurring flow research.

  Weaknesses

  As of end-February, India was one of the most underallocated markets for GEM long-only investors; foreign investors net sold India equities by US$14.2bn from early March to early April.

  Comparison

  India was underweight relative to Brazil and Korea in long-only positioning.

  Risks

  Persistent foreign outflows, valuation pressure, and high-beta volatility.

• Brazilian equities

  A GEM long-only overweight market

  Strengths

  As of end-February, Brazil remained one of the most overweight markets for GEM long-only investors.

  Weaknesses

  The excerpt does not provide a specific March exchange foreign-flow number for Brazil.

  Comparison

  Together with Korea, Brazil is among the most overweight markets and is clearly stronger than India and Taiwan ex-TSMC positioning.

  Risks

  A broad decline in emerging-market risk appetite and volatility in Latin America flows.

• Japanese equities

  An underweight market in global long-only portfolios and a potential leader in any rebound

  Strengths

  Japan's underweight narrowed slightly month on month to 9bp, and the report expects any post-ceasefire rebound to be led in part by Japan.

  Weaknesses

  Foreign investors net sold Japan equities by US$22.9bn from early March to early April, and global long-only portfolios remain underweight Japan.

  Comparison

  Japan's underweight in global long-only portfolios is narrowing, while EM overall is moving closer to neutral weighting.

  Risks

  Foreign selling pressure, slower-than-expected position repair, and weaker global risk appetite.

• CREDICORP LTD (BAP.US)

  A member of the GEM long-only single-stock overweight list

  Strengths

  The report lists it as one of the investors' most overweight stocks.

  Weaknesses

  The report provides no company fundamentals, valuation, target price, or standalone rating.

  Comparison

  It appears on the overweight list alongside SK Hynix, SK Square, Samsung Electronics, and CATL.

  Risks

  This reference comes only from fund-positioning observations and cannot replace fundamental research or a stock rating.

Key data

• March net selling of emerging-market equities by active foreign fundsUS$5.3bnEPFR basis, as of April 1, 2026.
• March passive foreign inflows into emerging-market equitiesUS$4.0bnA sharp slowdown from US$31.0bn in February.
• Net foreign selling of Taiwan equities from early March to early AprilUS$29.3bnStock exchange disclosure basis.
• Net foreign selling of Korea equities from early March to early AprilUS$23.6bnStock exchange disclosure basis.
• Net foreign selling of Japan equities from early March to early AprilUS$22.9bnStock exchange disclosure basis.
• Net foreign selling of India equities from early March to early AprilUS$14.2bnStock exchange disclosure basis.
• Net foreign selling of Indonesia equities from early March to early AprilUS$1.4bnStock exchange disclosure basis.
• Underweight in Japan within global long-only equity funds9bpAs of end-February 2026, EPFR basis; the underweight narrowed slightly month on month.
• AUM of the U.S. active emerging-market fund sampleUS$191bnTop 40 U.S. active funds in the Morningstar Emerging Markets Equity category.
• AUM of the SICAV active emerging-market fund sampleUS$69bnTop 40 active funds in the International Funds: Morningstar Emerging Markets Equity category.
• AUM coverage of the Japan fund composite portfolioUS$910bnComposite of 160 funds, of which Japan equities account for US$76bn.

Impact & implications

The investment implication of the report is that recent flow and positioning changes explain short-term volatility and selling pressure in Asia/emerging markets, especially in Taiwan, Korea, Japan, India, and the technology/semiconductor chain. However, the long-only allocation structure still shows relative preference for some markets, and if geopolitical or macro risks ease, renewed participation could first drive rebounds in Japan, Korea, Taiwan, and high-beta emerging markets. For investors, it is important to distinguish between short-term foreign outflows, hedge fund gross exposure reductions, and long-term active fund allocations.

Risks

• Foreign outflows since March may persist, weakening short-term risk appetite in Asia and emerging markets.
• Further reductions in hedge-fund gross exposure could amplify drawdowns in crowded sectors, especially technology and semiconductors.
• EPFR, exchange disclosures, and fund-holdings estimates have different coverage universes, so the data may not fully match.
• Fund holdings estimates rely on partial disclosures and the largest-AUM sample, making them market-indicative rather than complete factual data.
• Morgan Stanley discloses that it may have business relationships with the covered companies, so investors should treat the research as only one input.

What to watch

• Whether weekly and monthly EPFR emerging-market fund inflows recover.
• Whether foreign buying and selling on the Taiwan, Korea, Japan, India, and Indonesia exchanges moves from net selling to stabilization.
• Changes in hedge funds' gross exposure, net exposure, and short positions in Korea, China A-shares, and technology/semiconductors.
• Whether active and passive foreign funds continue to net sell Chinese equities, and whether outflows from domestic passive funds ease.
• Changes in overweight/underweight positioning for Brazil, Korea, India, and Taiwan within GEM long-only portfolios.
• Whether any ceasefire or de-escalation path continues and whether it drives rebounds in Japan, Korea, Taiwan, and other high-beta emerging markets.