Foreign investors withdrew $23.49 billion from Asian equities in September, reversing net purchases of about $4.72 billion in August, according to Reuters and LSEG data covering stock exchanges in South Korea, Taiwan, India, Indonesia, Thailand, Vietnam and the Philippines. The withdrawal was primarily driven by surging US Treasury yields, persistent inflation concerns and tighter monetary policies in developed economies. This represents the largest single-month outflow in recent months, underscoring the sensitivity of Asian markets to global monetary policy changes.
The Federal Open Market Committee raised interest rates by 25 basis points in September, a move that was widely anticipated but still surprised market participants with its magnitude. The Fed's tightening stance was aimed at curbing inflationary pressures building in the United States. As reported by Reuters, the benchmark US 10-year Treasury yield surged 53.5 basis points in September and reached 5.3645% on Wednesday, its highest level since April 2002, as rising oil prices fuelled concerns that inflation could remain elevated for longer. The hawkish Fed stance, combined with a Bank of Japan at its highest policy rate since 1995 and broad tightening across advanced economies, raises hurdles for emerging-market carry into the fourth quarter.
South Korea accounted for more than 70% of the regional outflows as foreign investors reduced their exposure to one of Asia's largest technology-heavy markets following a strong rally in artificial intelligence-linked stocks. Foreign investors have withdrawn a further $4.81 billion from South Korean equities in October so far, continuing the selling pressure that began in September. The retreat also coincided with cooling enthusiasm around the AI-driven technology rally that had lifted several Asian markets this year, as investors locked in gains from richly valued semiconductor and technology stocks.
Indian equities recorded foreign outflows of $3.75 billion in September, reversing two consecutive months of inflows and reflecting the broader retreat from Asian stocks. Other Asian markets also witnessed substantial withdrawals, with foreign investors selling a net $1.28 billion in Taiwanese equities, $783 million in Thai stocks, $576 million in Indonesian shares and $135 million in Philippine equities, according to Reuters. Vietnam was the exception, attracting modest foreign inflows of $6.68 million. The selloff came amid a stronger US dollar and higher US bond yields, which increased the attractiveness of developed-market assets relative to riskier investments in emerging Asia.
Global hedge funds have reduced their exposure to Asian equities as investors reassess risk amid higher developed-market yields and persistent inflation concerns. Goldman Sachs research showed that hedge funds' overweight position in Asian stocks had narrowed to 13% relative to the MSCI All Country World Index by mid-September, down from a peak of 20% in June. The reduction in positioning suggests that institutional investors have become more cautious about regional equities following the earlier rally, particularly in markets with significant exposure to technology and AI-related stocks. Market strategists expect foreign flows to remain under pressure in the near term, particularly if US Treasury yields stay elevated and investors continue to anticipate tighter monetary conditions.
