Emerging markets saw equity outflow worth $46B in June
What's the story
Emerging markets witnessed a massive exodus of foreign capital in June, with net outflows from equities hitting $46.1 billion. The trend was mainly driven by heavy sell-offs in tech-heavy South Korea and Taiwan, according to the latest data from the Institute of International Finance (IIF). Despite this trend, emerging market debt continued to attract foreign inflows, indicating a preference for fixed-income assets amid global uncertainty.
Market impact
South Korea, Taiwan witness largest monthly outflows
The IIF's data showed that foreign investors withdrew a whopping $30.5 billion from South Korean stocks in June, the largest monthly outflow in over 25 years. Taiwan wasn't far behind either, with equity outflows of $18.3 billion during the same period. Despite the equity sell-off, emerging market debt proved resilient with foreign inflows of $28.3 billion in June.
Risk factors
Macroeconomic risks weigh on emerging market equities
The IIF's data also highlighted several macroeconomic risks that could continue to weigh on emerging market equities. These include a more hawkish US Federal Reserve under its new chair Kevin Warsh, renewed oil price volatility, tighter dollar liquidity, and higher funding costs for risk assets. Other factors include rising global discount rates, uncertainty over China's economic outlook, and weaker corporate earnings confidence.
Regional disparities
Regional disparities in portfolio flows
The IIF's data also showed regional disparities in portfolio flows. Emerging Asia saw overall portfolio outflows of $27 billion in June, while Latin America, emerging Europe, and the Middle East and North Africa all saw positive portfolio flows. China witnessed a reversal of investor sentiment with foreign investors pulling $14 billion from Chinese equities during the month.