Foreign investors returned to emerging markets in July, investing a net $18.8 billion in debt and equities after two months of outflows, according to data from the Institute of International Finance (IIF). The inflows marked a significant improvement from June, when emerging markets recorded a net outflow of $18 billion, and May, when investors withdrew $25.2 billion. Debt markets accounted for most of the recovery, attracting $26.7 billion in foreign capital, while equities recorded a $7.8 billion outflow. The equity outflow was nevertheless substantially smaller than the $46.1 billion withdrawn in June, suggesting that selling pressure in emerging-market stocks eased considerably.
Overseas investors made a significant shift in July, turning net buyers in India's information technology shares for the first time this year. According to The Economic Times, ₹3,298 crore flowed into IT stocks during the second half of July, with total inflows reaching ₹3,358 crore for the month. This marked the first instance of net buying in the IT sector since the beginning of 2026, as foreign investors showed renewed interest in the beaten-down technology stocks. The trend continued into early August, with FPIs maintaining their positive stance on IT stocks as global investors seek diversification away from AI-linked markets in South Korea and Taiwan.
Consumer durables emerged as the top destination for foreign investment, attracting ₹4,958 crore during the July 16-31 period. The healthcare sector followed closely with ₹3,654 crore in inflows, while consumer services, automobiles, and chemicals also witnessed significant foreign interest. As reported by The Economic Times, FPIs remained net buyers in these sectors with purchases ranging between ₹532 crore and ₹2,840 crore during the fortnight. The consumer durables and healthcare sectors collectively attracted ₹25,298 crore in foreign portfolio investments, reflecting stronger preference for domestic consumption and discretionary growth over capital expenditure-driven sectors.
Asia recorded one of the biggest improvements in July, turning to a net inflow of $9.3 billion from a $27 billion outflow in June, according to The Economic Times. The region's equity outflows narrowed to $4.8 billion from $40.5 billion in June, while debt markets attracted $14.1 billion. China remained an exception to the broader regional recovery, with foreign investors withdrawing $3.7 billion from Chinese equities and $3.4 billion from debt markets. However, equity selling in China eased sharply from June. The divergence between debt and equity flows has remained a key feature of emerging markets this year, with technology-heavy markets in Asia facing pressure as investors reduced exposure to parts of the technology sector.
Strong demand for emerging-market debt has coincided with a surge in government bond issuance, with emerging-market sovereigns issuing around $19 billion in debt in July, roughly twice the average issuance for the month over the past decade, according to IIF data. Total emerging-market sovereign issuance for the year has reached about $187 billion, the highest level for this period on record. Sovereign bond spreads also narrowed in July to their tightest level in nearly two decades, supported by relatively high yields and subdued currency volatility. However, the environment remains vulnerable to changes in global monetary policy and geopolitical conditions, with the IIF warning that tighter U.S. monetary policy could undermine carry trades that have supported demand for emerging-market debt.
