AI Winners Bear the Brunt
South Korea and Taiwan — home to the semiconductor and AI-hardware supply chains that have powered a rally in emerging market stocks — absorbed the heaviest selling. South Korea bled $18.3 billion in net foreign outflows during the month, while Taiwan saw $8 billion exit, according to the IIF figures. The June withdrawals marked the second consecutive month of overall portfolio outflows from emerging markets, following $26.6 billion in net outflows recorded in May. kitco.com iif.com finance.yahoo.com reuters.com
The selloff accelerated despite — or perhaps because of — a strong first half for both markets. Taiwan has overtaken China as the largest weight in the MSCI Emerging Markets Index, holding 24.8% as of late April, driven by AI-fueled demand for semiconductors. South Korea’s weight climbed to nearly 25% by late June, also surpassing China, which fell below 19%. Together the two markets now command roughly half the benchmark index, a shift that has left foreign portfolios heavily exposed to a narrow set of chipmakers. biz.chosun.com msci.com asiae.co.kr
Record Pace of Selling
The June figures cap a historic first half. Reuters reported that overseas investors sold a net $137.36 billion from shares across South Korea, Taiwan, India, Indonesia, Thailand, Vietnam, and the Philippines in the first six months of 2026 — the fastest pace in LSEG data going back to 2010. South Korea accounted for $70.8 billion and Taiwan $29.6 billion of those cumulative outflows. reuters.com finance.biggo.com
Analysts attributed the selling not to bearish sentiment but to forced position trimming as AI-linked stocks became “crowded trades.” A disappointing earnings report from Broadcom in early June added to the pressure on the sector, while escalating Middle East tensions weighed on broader risk appetite before easing later in the month following a U.S.-Iran peace deal. reuters.com capitaleconomics.com reuters.com
Outlook Remains Divided
The MSCI EM equity gauge fell 1.4% in June, underperforming U.S. small caps. Yet some strategists remain constructive on the asset class heading into the second half, noting that the outflows reflect profit-taking rather than a fundamental deterioration. Capital Economics observed that outflow pressures eased in the latter part of June after geopolitical risks subsided. Goldman Sachs, meanwhile, has flagged a potential dollar weakening in the second half of 2026 that could support emerging market assets. navellier.com crestwoodadvisors.com capitaleconomics.com
