IIF: Emerging Market Stocks See $46 Billion Foreign Outflows

Foreign investors pulled a net $46.1 billion from emerging market equities in June, driven by a sharp selloff in technology stocks in South Korea and Taiwan, according to the latest monthly report from the Institute of International Finance (IIF).

The outflows contributed to a second consecutive month of overall portfolio investment losses across emerging markets.

The report showed that foreign investors withdrew $30.5 billion from South Korean equities—the largest capital outflow in more than 25 years—while Taiwanese stocks recorded $18.3 billion in net outflows.

Despite the weakness in equities, emerging market bonds attracted $28.3 billion in inflows during June. However, total portfolio flows still registered a net outflow of $17.8 billion for the month.

Jonathan Fortun, Chief Economist at the IIF, said investors remain willing to lend to emerging markets but are increasingly reluctant to expand their exposure to equity markets.

"Investors are still prepared to lend to emerging markets, but they are less willing to increase their exposure to equity risk more broadly," Fortun said.

The report warned that a more hawkish US Federal Reserve under Chairman Kevin Warsh, combined with renewed volatility in oil prices, could tighten US dollar liquidity and increase investment risks across emerging markets.

Fortun added that higher global discount rates, uncertainty surrounding China's economic outlook, weaker confidence in corporate earnings, and the heavy weighting of technology and energy sectors have encouraged investors to reduce equity allocations.

Regional performance varied significantly during the month.

Emerging Asia recorded $27 billion in net portfolio outflows, while Latin America, emerging Europe, and the Middle East and North Africa all posted positive portfolio inflows.

Chinese equities accounted for $14 billion in net outflows, a sharp reversal from the $8.1 billion in inflows recorded in May. Foreign investors also withdrew $3.7 billion from China's bond market.

Fortun said the first half of the year demonstrated that emerging markets continued to attract capital overall, but only because strong inflows into fixed-income assets more than offset the sustained liquidation of equity holdings.

Meanwhile, sovereign bond issuance reached approximately $170 billion during the first half of the year, marking the strongest first-half performance in recent years, while net issuance exceeded $100 billion.

June also saw successful international bond offerings from Mexico, China, Latvia, and Bahrain, underscoring continued access to global capital markets across multiple regions.