Diverging EM fund flows: foreign investors continue reducing Asian technology risk, while Korea's one-day strong rebound does not alter July's de-risking trend
AI summary card
Diverging EM fund flows: foreign investors continue reducing Asian technology risk, while Korea's one-day strong rebound does not alter July's de-risking trend
Goldman Sachs notes that foreign investors recorded net selling of US$1.4bn in EM Asia ex-China this week, with Taiwan the main drag; Korea received a record US$5.2bn inflow on Friday, but foreign selling in July remained concentrated in Taiwan and Korea, while Asian hedge fund positioning declined sharply but remained above historical levels.
- EM Asia ex-China saw weekly net foreign outflows of US$1.4bn, mainly driven by Taiwan's US$2.6bn net outflow; although Korea received record buying of US$5.2bn on Friday, its weekly net inflow was only approximately US$0.5bn.
- Cumulative foreign selling of EM equities ex-China reached approximately US$25bn in July, with Taiwan at approximately -US$24bn and Korea at approximately -US$5bn, making the North Asian markets with high AI/technology weight the core source of pressure.
- Global equity funds received US$64bn of inflows this week, up from US$30bn the previous week; US funds received approximately US$30bn, while GEM funds received US$2.1bn and approximately US$53bn year to date.
- Asian hedge funds significantly reduced gross positioning in July. Net exposure to Asian information technology fell from 27% on June 22 to 20.8%, but remained substantially above the 9.6% level at the start of the year; net allocations to Korea and Taiwan remained at the 94th–96th percentiles of their five-year histories.
- Korean leveraged ETF and margin balances declined rapidly. Domestic leveraged ETF AUM fell from a peak of approximately US$34bn to approximately US$14bn, representing about 3% of the total ETF market, indicating that deleveraging has occurred but volatility risk remains a concern.
Report interpretation
Overview
This report is Goldman Sachs' EM Weekly Fund Flows Monitor, focusing on global and emerging-market equity fund flows, foreign and domestic institutional funds, southbound and northbound trading, retail funds, hedge fund positioning, and North Asian leverage indicators. The core conclusion is that global equity funds continue to see strong inflows, but emerging-market Asia—particularly Taiwan and Korea—is experiencing foreign-investor de-risking; Korea's strong foreign buying on Friday eased the weekly data but did not alter the July trend of concentrated foreign selling in AI/technology-related North Asian markets.
Core views
First, foreign fund flows diverged significantly across regions: EM Asia ex-China recorded weekly net outflows of US$1.4bn, primarily due to Taiwan's US$2.6bn outflow, while non-Asian EM saw modest net buying of approximately US$230mn, led by Brazil. Second, July's risk reduction was concentrated in Taiwan and Korea, which have high AI/technology weights; cumulative foreign selling of EM equities ex-China reached approximately US$25bn. India performed relatively well, receiving approximately US$2bn of foreign inflows in July. Third, hedge funds have not fully unwound their high-positioning risk: Asian, Korean, and Taiwanese positioning declined from recent peaks but remained at high five-year historical percentiles; China's net allocation fell to 7.0%, near a one-year low and at the 14th percentile of its five-year history. Fourth, declines in Korean leveraged ETFs, margin balances, and margin-related indicators show that localized deleveraging has begun, but the report notes that intraday rebalancing flows may still amplify volatility.
Analysis framework
The report uses a fund-flow monitoring framework, cross-comparing multiple indicators including foreign institutional investor (FII) flows, domestic institutional investor (DII) flows, EPFR fund flows, Stock Connect southbound and northbound flows, retail flows, hedge fund Prime Book positioning, leveraged ETF AUM, and margin balances to identify changes in risk appetite across regions, countries, industries, and investor types.
Methodology notes
Cross-market foreign and domestic institutional net buying and selling
Weekly, monthly, and year-to-date net inflows and outflows are used to measure changes in foreign and domestic institutional risk appetite across markets, particularly to identify marginal fund-flow pressure or support in Taiwan, Korea, India, Brazil, and other markets.
Subscriptions and redemptions of active and passive equity funds
The report compares global, developed-market, emerging-market, GEM, AEJ, regional, and sector fund flows to assess whether mutual fund and ETF flows are aligned with foreign trading direction.
Hedge fund net allocation, gross allocation, and sector net exposure
Goldman Sachs Prime Book data are used to track exposures to Asia, Korea, Taiwan, China, and Asian information technology, with one-year and five-year historical percentiles used to assess positioning crowding.
Regional equity risk thermometer
The report presents ERB measures for GS Asia Pacific ex-Japan, China-H, India, and other markets as supplementary indicators of regional risk conditions and market sentiment.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Korean equity marketCore focus of fund-flow and positioning monitoring
- Strengths
- Foreign inflows of approximately US$5.2bn on Friday, buying by domestic institutions in July and this week, and declines in leveraged ETF and margin balances that may help release some overheating risk.
- Weaknesses
- Cumulative foreign flows in July remained net selling, while Korean hedge fund net allocation was at the 96th percentile of its five-year history, indicating crowded positioning.
- Comparison
- Compared with Taiwan, Korea had a stronger Friday rebound and modest weekly net inflows; compared with India, however, the persistence of fund flows remains weaker.
- Risks
- Continued unwinding of high positioning, intraday volatility amplified by leveraged ETF rebalancing, and a reversal in AI/technology momentum.
- Taiwanese equity marketNorth Asian technology market with the most concentrated foreign selling pressure
- Strengths
- It remains a core Asian technology/semiconductor market with high long-term portfolio weightings.
- Weaknesses
- Weekly foreign net outflows of US$2.6bn and approximately -US$24bn in July; hedge fund net allocation to Taiwan remained at the 94th percentile of its five-year history.
- Comparison
- July foreign selling was significantly larger than in Korea and other Asian markets.
- Risks
- Outflows from technology hardware and semiconductors, crowded positioning, and a convergence of retail and foreign selling.
- China/H-shares and Southbound-related assetsFocus of Southbound Connect flows and China positioning
- Strengths
- Southbound flows remained net positive at approximately US$46.5bn year to date, with Tencent, Z.AI, GigaDevice Semiconductor, and other stocks still recording Southbound buying this week.
- Weaknesses
- Weekly Southbound net outflows of US$2.4bn; hedge fund net allocation to China fell to 7.0%, near a one-year low.
- Comparison
- Compared with Korea and Taiwan, China's hedge fund net allocation has fallen to a lower historical percentile.
- Risks
- Outflows from Southbound technology hardware and semiconductor sectors, declining risk appetite, and withdrawals from high-volatility growth assets.
- Indian equity marketA market in EM Asia that relatively benefited from foreign inflows
- Strengths
- Foreign buying of approximately US$0.4bn this week and approximately +US$2bn in July; domestic institutional buying was also strong.
- Weaknesses
- Some fund-flow measures indicate periodic outflows from India-related funds.
- Comparison
- India's July fund-flow performance was more resilient than Taiwan's and Korea's.
- Risks
- If global EM risk appetite deteriorates, Indian valuations and positioning crowding may still come under pressure.
- Brazilian equity marketFund-flow bright spot outside Asia
- Strengths
- This week's modest buying in non-Asian EM was mainly driven by Brazil's +US$170mn, while foreign buying in 2026 totaled approximately US$6.9bn.
- Weaknesses
- Domestic institutions recorded approximately US$170mn of outflows this week.
- Comparison
- Brazil outperformed most non-Asian EM markets and contrasted with foreign outflows from Asia.
- Risks
- A reversal in LatAm fund rotation, external dollar liquidity, and commodity-price volatility.
Key data
- Weekly EM Asia ex-China FII flows-US$1.4bnMainly driven by Taiwan's -US$2.6bn.
- Weekly Korea FII flows+US$0.5bnForeign inflows of approximately US$5.2bn on Friday represented record buying and offset earlier selling pressure.
- July EM equities ex-China foreign flowsapproximately -US$25bnTaiwan approximately -US$24bn, Korea approximately -US$5bn; India approximately +US$2bn.
- Weekly global equity fund inflowsUS$64bnUp from US$30bn the previous week; US funds approximately +US$30bn and GEM approximately +US$2.1bn.
- GEM fund year-to-date inflowsapproximately US$53bnThe report states that GEM fund flows are on one of the faster annual buying paces of the past two decades.
- Asian information technology net exposure20.8%Below 27% on June 22, 2026, but still above 9.6% at the start of the year.
- China net allocation7.0%Near a one-year low and at the 14th percentile of the past five years.
- Korean leveraged ETF AUMapproximately US$14bnDown approximately 60% from a peak of approximately US$34bn, representing about 3% of total Korean ETF AUM.
- Weekly Southbound Connect flows-US$2.4bnStill +US$46.5bn year to date; weekly outflows were mainly from technology hardware and semiconductor-related sectors.
- Asian retail fund year-to-date inflowsapproximately US$74bn to US$77bnThe text gives slightly different figures in different sections; Taiwan and Korea saw retail selling this week.
Impact & implications
The report suggests that the key short-term conflict in emerging-market Asian equities is not a lack of liquidity in global equity funds, but regional de-risking driven jointly by high positioning, technology concentration, and the retreat of leveraged capital. For investors, Korea's strong rebound on Friday may represent fund repurchases after oversold conditions, but if hedge funds and foreign investors continue reducing Asian technology exposure, Taiwan, Korea, and related semiconductor/hardware chains may remain volatile. By contrast, India, Brazil, and some ASEAN markets received inflows, indicating that capital is seeking regional alternatives with lower crowding or more resilient fundamentals.
Risks
- Positioning in Asian technology and AI-related markets remains elevated; if momentum continues to reverse, foreign investors and hedge funds may further reduce risk.
- Korean and Taiwanese leveraged ETFs, margin balances, and retail trading may amplify intraday volatility.
- Southbound funds saw significant outflows this week; if technology hardware and semiconductor sectors remain under pressure, related Hong Kong-listed large-cap stocks may be affected.
- Global equity fund inflows are strong overall, but regional allocation may continue shifting from crowded North Asian technology markets toward India, Brazil, or other less crowded markets.
- The OCR text contains some unclear numerical readings, such as individual items referring to US$10bn and US$80bn; the original report charts should be used for verification.
What to watch
- Whether Korea and Taiwan FII flows shift from selling to sustained buying in the coming weeks, rather than reflecting a one-day technical rebound.
- Whether Asian information technology net exposure can continue declining from 20.8% or begins to rebuild while remaining above the year-start level.
- Whether Korean leveraged ETF AUM, margin balances, and margin call to receivable continue to decline.
- Whether the direction of Southbound buying and selling in technology hardware, semiconductors, and leading internet companies reverses.
- Whether GEM and AEJ fund inflows can be sustained, and whether active and passive fund flows diverge.
- Whether India, Brazil, Thailand, and other relatively stronger markets continue absorbing funds flowing out of North Asia.