Foreign capital retreated sharply from technology-focused stock markets in South Korea and Taiwan in June, driving a $46.1 billion net exodus from emerging market equities, the Institute of International Finance reported. The large withdrawals contributed to developing economies recording a second consecutive month of overall portfolio outflows.
The IIF's monthly data showed that South Korean equities experienced the heaviest exit, with foreign investors withdrawing $30.5 billion - the largest monthly outflow for the market in more than 25 years. Taiwan equities posted $18.3 billion of outflows. The report attributed much of the equity liquidation to the concentration of technology exposure in those markets.
Despite the sharp equity flight, a clear split emerged between stocks and bonds. International investor demand for emerging market debt remained robust, with bond inflows totaling $28.3 billion in June. That demand limited but did not fully offset equity losses, leaving overall portfolio flows in negative territory at a net loss of $17.8 billion for the month.
"Investors are still willing to lend to EM," IIF chief economist Jonathan Fortun wrote. "They are less willing to add broad equity risk."
The IIF's commentary outlined several factors behind the reallocation away from equities. Fortun pointed to higher global discount rates, uncertainty surrounding China, weaker earnings confidence and investor sensitivity to exposure in technology and energy sectors as drivers that led to reduced equity allocations.
The report also flagged potential forces that could further tighten conditions for emerging markets. It noted that a more hawkish U.S. Federal Reserve under new chairman Kevin Warsh, together with renewed oil price volatility, could compress dollar liquidity and raise the hurdle for investors taking on EM risk.
Regional flow patterns were uneven. Emerging Asia recorded $27 billion in total portfolio outflows in June, driven by the large equity withdrawals in Korea and Taiwan. In contrast, Latin America, emerging Europe and the Middle East and North Africa all posted positive portfolio flows during the month.
China-related movements were also notable. Equity outflows from China accounted for $14 billion of the total June exodus, a marked reversal from May when equities there saw an $8.1 billion inflow. Foreign investors additionally withdrew $3.7 billion from Chinese debt markets in June.
"The first half message is clear," Fortun wrote. "EM has still attracted capital in aggregate, but only because debt inflows have more than offset persistent equity liquidation."
The report said sovereign bond issuance in the first half of the year reached roughly $170 billion, representing the strongest opening half in recent years, with net issuance above $100 billion for the year. June featured international bond deals from Mexico and China, Latvia and Bahrain, which the IIF said confirmed that market access for issuers remained available across regions.
In sum, June's data present a bifurcated picture for emerging markets: steady credit demand from international investors alongside a continued pullback from equity risk, particularly where portfolios are concentrated in technology exposure.