Foreign investors pull $27 billion from emerging markets in May

Foreign Investors Pull $27 Billion From Emerging Market Portfolios in May

Foreign investors withdrew a net $26.6 billion from emerging market portfolios in May, partially reversing a sharp rebound seen in April, as equity selling across Asia overwhelmed inflows into debt markets, according to data released Wednesday by the Institute of International Finance.

The outflows mark a return to negative territory after the IIF recorded inflows of $70.6 billion in April, which itself had followed a $70.3 billion exodus in March — the largest monthly withdrawal since the pandemic-era rout of March 2020.streetinsider

Asia Bears the Brunt

The reversal was driven almost entirely by equities, with foreign investors pulling $37 billion from emerging market stocks during the month. Emerging Asia recorded net portfolio outflows of $31.6 billion, according to the IIF data, with selling concentrated in markets excluding China.thestandard

The pattern extends a broader trend of foreign capital retreating from Asian equity markets that has persisted through much of 2026. India alone has seen more than $20 billion in foreign outflows from equities in the first four months of the year, surpassing the previous year’s record annual withdrawal, according to Reuters.reuters

Outperformance Persists Despite Outflows

The capital flight comes against a backdrop of strong emerging market performance relative to developed markets. The MSCI Emerging Markets Index is up roughly 19% year-to-date, according to data from fund tracker Fundselector Asia, while the S&P 500 has gained approximately 7.9% over the same period.slickcharts

The divergence between fund flows and market returns reflects a complex picture: while valuations and earnings growth in emerging markets remain attractive — with EM equities delivering a 33.6% gain in 2025 compared with 17% for the S&P 500 — investors appear wary of geopolitical risks and shifting macroeconomic conditions that have periodically triggered sharp reversals.ssga

A Volatile Year for Capital Flows

The May figures extend what has been a turbulent year for emerging market capital flows. January saw an unprecedented $100.5 billion in inflows, followed by a pullback to $21.7 billion in February. March brought the pandemic-era record outflow of $70.3 billion, before April’s strong rebound preceded the latest retreat.reuters

Debt markets provided a partial offset in May, with bond inflows partially cushioning the equity selling. Morgan Stanley noted in a recent outlook that easing inflation, a weakening dollar, and demand for non-dollar assets continue to support the case for emerging market debt.morganstanley