Key facts
- Emerging market stocks experienced net outflows of $46.1 billion in June.
- South Korea and Taiwan led these outflows, with $30.5 billion and $18.3 billion respectively.
- Bonds, however, saw inflows of $28.3 billion.
- Overall portfolio flows for developing economies resulted in a net loss of $17.8 billion for the month.
- China also saw equity outflows of $14 billion in June.
Foreign investors pulled a net $46.1 billion from emerging market stocks in June, marking a significant exodus driven by sharp retreats from tech-heavy equities in South Korea and Taiwan. This contributed to a second consecutive month of overall portfolio losses for developing economies, according to data from the Institute of International Finance (IIF).
The report highlighted that South Korea experienced outflows of $30.5 billion, the largest in over 25 years, while Taiwan equities saw $18.3 billion in outflows. This equity sell-off occurred despite bonds attracting $28.3 billion in inflows during the same month, indicating investors were more willing to lend to emerging markets than to take on broad equity risk.
IIF chief economist Jonathan Fortun cited several factors contributing to the reduced equity allocations, including a more hawkish U.S. Federal Reserve under new chairman Kevin Warsh, renewed oil volatility, higher global discount rates, uncertainty surrounding China, and weaker earnings confidence. These factors collectively tightened dollar liquidity and increased the hurdle for emerging market risk.
The data also revealed regional disparities, with emerging Asia recording $27 billion in total portfolio outflows. China's equity market also saw significant outflows of $14 billion, a notable shift from an $8.1 billion inflow in May, and its debt market experienced a $3.7 billion outflow.
Despite the equity liquidation, Fortun noted that emerging markets have attracted capital in aggregate during the first half of the year, primarily due to strong debt inflows that more than offset persistent equity outflows. First-half sovereign issuance reached approximately $170 billion, the strongest in recent years, with market access remaining available across various regions, as evidenced by international bond deals from Mexico, China, Latvia, and Bahrain.