Foreign Investors Sold Taiwan and Korea Heavily Weekly, Hedge Funds Replenished Asian Positions Significantly in April

Overview

This Goldman Sachs weekly EM fund flows monitoring report focuses on the recent divergence in foreign capital flows: on one hand, Asian markets excluding China experienced significant selling by foreign institutional investors (FII) last week, led by Taiwan and Korea; on the other hand, hedge funds notably reversed their March selling behavior in April, significantly replenishing Asian positions. Meanwhile, Southbound flows continued net inflows into Hong Kong stocks, and GEM (Global Emerging Markets) funds recorded the fastest buying pace year-to-date in nearly two decades. Overall, the market presents a complex picture of short-term foreign capital volatility coexisting with medium-to-long-term smart money positioning, with divergent behaviors among different investor types.

Core views

Fund flows show significant regional and structural divergence. Last week (as of late April 2026), Asian emerging markets excluding China saw foreign net outflows of $9.2 billion, with Taiwan suffering the most at $6.4 billion, followed by Korea and India at $1.5 billion and $900 million, respectively. Non-Asian emerging markets also saw small net outflows of $480 million, with Brazil as the main drag (-$350 million). However, from a longer-term perspective, since the late February foreign capital exodus, only Taiwan has seen significant reversal, replenishing about one-third of outflows; markets like Korea and India remain in net outflow. In contrast, Japan is one of this year's top markets for foreign inflows (year-to-date +$47.6 billion), while Korea is the top outflow market (year-to-date -$36.3 billion). Hedge fund behavior has seen a critical turning point. Prime data shows strong net buying flows for Asian stocks in April, with hedge funds replenishing about 66% of March's selling. This replenishment was mainly driven by Japan, China, Korea, and Taiwan. Specifically, Taiwan saw a 70% reversal in selling, while Korea saw 35%. With this replenishment, hedge fund allocations to Taiwan and Korea have rebounded to near five-year highs. Notably, while China stocks also recorded strong net buying, the driver was mainly short covering exceeding long selling, rather than active long additions; hedge fund net allocations rose 43 bps to 8.4%, at the 59th percentile of the five-year range. EM allocations excluding China also rebounded to historical highs after the March reversal. Mutual funds performed excellently with accelerated capital accumulation. In April, EM and Asia mutual funds rose 14% and 16%, respectively, while China funds rose 9%, fully recovering year-to-date highs. Year-to-date, about 40% of large Asia funds and 60% of large EM funds outperformed benchmarks, slightly below the ten-year average of 55%-65% but still robust given market volatility. More notably, the pace of capital accumulation: GEM funds have attracted about $60 billion year-to-date, the fastest annual buying pace in the past two decades. Passive funds contributed the majority ($54.1 billion), with active funds at $5.9 billion. Domestic and inter-market flows provide support. For Southbound flows, last week saw net inflows of $2.4 billion, with year-to-date cumulative inflows at $36 billion, showing mainland investors' continued allocation appetite for Hong Kong assets. In other Asian markets, Taiwan (+$5.1 billion) and Korea (+$600 million) also saw retail buying this week, with year-to-date total retail inflows in Asia at $30 billion. Additionally, Asian domestic institutional investors (DII) saw net inflows of $3.5 billion this week, mainly driven by India and Korea, each contributing $1.2 billion.

Analysis framework

This report employs a high-frequency fund flow tracking and multi-investor type cross-validation analytical framework. First, institutions decompose weekly buying/selling behaviors of foreign institutional investors (FII), hedge funds, mutual funds, domestic institutional investors (DII), and retail investors using EPFR, Bloomberg, and local exchange data to identify marginal changes in different capital attributes. Second, using an "event-driven backtracking method," current flows are placed on a timeline of specific geopolitical events (e.g., Iran conflict) to quantify outflow scale and replenishment progress (e.g., only 10% of $79 billion outflows replenished), assessing market sentiment recovery. Third, through "long-short allocation percentile" analysis, current hedge fund positions are compared to five-year historical distributions (e.g., Taiwan/Korea near five-year highs, China at the 59th percentile) to determine whether current levels signal trend continuation or mean reversion. Finally, combining fund performance attribution (e.g., distinguishing short covering from long additions in China's net buying) avoids misleading surface-level net inflow data, revealing true flow quality and sustainability.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  Fund flows as a supply-side variable for asset prices

  In short-term asset pricing, fund flows directly constitute marginal demand or supply for stocks. This report treats buying/selling behaviors of different investor types as 'liquidity supply' factors affecting stock prices, analyzing net buying/selling scales to judge short-term price movement drivers from a capital perspective—a core view for understanding EM volatility.

• Event Game Theory & Behavioral FinanceExpectation Gap/Management

  Geopolitical event-driven outflow and replenishment measurement

  Using the 'Iran conflict' as an anchor, the report quantifies that only about 10% ($8 billion) of the $79 billion outflows post-February peak have been replenished. This 'shock-response-recovery' quantitative framework helps investors judge whether current market sentiment is in panic release or rational recovery, rather than simply viewing absolute inflow/outflow values.

• Quantitative/Factor/Portfolio TheoryBeta/alpha analysis

  Hedge fund long/short position decomposition and net allocation percentiles

  The report not only focuses on net buying but also breaks down hedge fund long, short, and net allocation changes, placing current allocation levels in five-year historical percentiles (e.g., China's 8.4% allocation at the 59th percentile). This method distinguishes 'true long additions' from 'false replenishment,' identifying which markets' rallies are fragile rebounds driven by short covering and which are solid bottoms from active allocations.

Key data

• Last week's foreign net outflows from Asian stocks ex-China-$9.2 billionMainly driven by Taiwan (-$6.4 billion), Korea (-$1.5 billion), India (-$900 million)
• Hedge funds' April replenishment of March selling~66%Strong net buying in Asian stocks, Taiwan reversed 70%, Korea 35%
• GEM funds' year-to-date cumulative inflows+$60 billionFastest annual buying pace in 20 years, passive funds accounted for $54.1 billion
• Southbound flows' year-to-date cumulative inflows+$36 billionLast week saw $2.4 billion inflows, showing mainland capital's continued allocation to Hong Kong stocks
• April EM/Asia mutual fund performance+14% / +16%Fully recovered previous highs; YTD about 40% Asia funds, 60% EM funds outperformed benchmarks
• Foreign replenishment since February peak~10%Only $8 billion of $79 billion outflows replenished, sentiment recovery still early
• China hedge fund net allocation8.4%Up 43 bps MoM, at the 59th percentile of five-year range, mainly driven by short covering
• 2026 YTD top EM market for foreign inflowsBrazil +$11.5 billionKorea was the top outflow market (-$36.3 billion), Taiwan (-$12.3 billion), India (-$20.2 billion)

Impact & implications

The report suggests current EM capital flows show clear structural divergence, making single-direction bullish or bearish conclusions inapplicable. Hedge funds' significant replenishment and GEM funds' record inflows indicate some smart money and long-term allocators are using short-term foreign selling pressure for contrarian positioning, especially in Taiwan and Korea, which are near five-year allocation highs, potentially providing medium-term support. However, slow overall foreign replenishment progress (only 10%) and China's net buying reliance on short covering suggest market sentiment remains unstable, with short-term volatility risks persisting. Southbound flows' continued inflows constitute a unique resilience source for Hong Kong stocks versus other Asian markets. Investors should differentiate signals from different capital types: hedge fund replenishment may offer short-term trading opportunities, while GEM fund accumulation points to long-term allocation value, but their asynchronous rhythms imply continued market volatility.

What to watch

• Whether foreign replenishment in Taiwan and Korea can sustain and extend to other previously outflow markets like India
• Changes in long additions' share of China's net buying structure to judge rebound quality
• Whether GEM fund inflow pace can maintain in Q2, especially active fund follow-through
• Southbound flows' sustainability and impact on Hong Kong stock pricing power
• Geopolitical developments' disturbances to overall foreign replenishment progress