Foreign Investors Pulled Nearly $27 Billion From Emerging Markets in May, With South Korean Stocks as the Biggest Outflow Point
N.R. Finch
Non-resident investors withdrew a net $26.6 billion from EM portfolios in May, swinging nearly $100 billion from April's $70.6 billion inflow; Korea's tech-heavy market alone lost $27.9 billion as strong US jobs data and high oil prices repriced global risk appetite.
April's money came back — why did it leave again in May?
IIF data: May saw $26.6 bn in net outflows from EM equity and debt portfolios, versus $70.6 bn in net inflows in April — a one-month swing of $97.2 bn.
This means → April's reopening of capital flows was a "test the door" moment, not a straight-line normalization.
The exit was almost entirely equities: stocks lost $37.0 bn net, while bonds attracted $10.4 bn net inflow.
In plain terms = foreign investors did not panic across the board — they selectively pulled out of equities while still collecting yield in bonds.
Who got sold the hardest?
Korea bled $27.9 bn — the largest single-country outflow. Its market is dominated by semiconductor and AI-linked names, making it a barometer of global AI-exposure sentiment.
India lost $4.9 bn; Brazil lost $2.9 bn. Selling concentrated in large, liquid markets.
Emerging Asia as a whole posted $31.6 bn in outflows — exceeding the EM-wide total; Latin America, emerging Europe, and MENA all stayed in positive territory.
This reflects a precision de-risking, not an EM-wide collapse: investors cut positions with the biggest gains, highest valuations, and most AI-sentiment sensitivity.
Why did China decouple?
While Asia was broadly sold, Chinese equities attracted $8.1 bn in net inflows for the month — though bonds lost $4.3 bn.
Excluding China, EM equities saw cumulative outflows of over $113 bn from March to May.
This means → strip China out and the equity bleed across the rest of EM is far worse than the headline number suggests.
How did US data and oil prices raise the EM "hurdle"?
IIF flagged a triple headwind: stronger-than-expected US non-farm payrolls + elevated energy prices + rising market bets on a Fed rate hike.
In plain terms = the stronger the US economy, the more attractive dollar assets become, and the higher the "hurdle yield" that investors demand before sending money back into EM — especially for countries whose external balances or policy credibility are already in question.
IIF warned this creates an unforgiving environment heading into June.
Why are bonds still attracting money?
Excluding China, EM bonds drew $14.7 bn in May alone; year-to-date EM portfolio inflows total $132.5 bn — nearly half of last year's full total — with bonds accounting for the bulk.
IIF economist Jonathan Fortun: the carry trade still matters — local-currency bonds are supported where real rates are high and policy credibility intact; hard-currency credit benefits from coupon income and yield demand.
This means → the market is not closed, but it has become "less forgiving." Investors keep favoring countries with high real yields and credible policy frameworks; the rest face a steeper cost of capital.
Content is for reference only, not financial advice.