AI Tech Trade Falters: Easing Foreign Outflows in India, Weakening Demand in South Korea and Taiwan

Global Trade Rotation in Emerging Markets Shows Signs of Exhaustion

The trade that dominated emerging markets over the last year, characterized by buying in AI-linked Asian markets and commodity-heavy economies while selling in India, may finally be showing signs of exhaustion. According to Elara Securities, foreign outflows from India are beginning to moderate as the broader rotation trade across emerging markets starts losing momentum.

Emerging markets witnessed their sixth consecutive week of outflows, with another $8 billion redeemed this week after a massive $24.4 billion exited over the previous 15 weeks. The largest pressure point continues to be China-dedicated domestic funds, which have seen nearly $79 billion of redemptions since April 2026.

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Global Emerging Market (GEM) funds have also started pulling back, recording their third straight week of outflows at $738 million, following $2.6 billion of outflows over the prior eight weeks. Elara noted that the selling pressure is concentrated in long-only active strategies, while ETF flows remain marginally positive. This suggests that while broader investor risk appetite is weakening, passive allocations have not yet fully reversed.

Since April 2025, foreign capital had aggressively rotated toward South Korea and Taiwan to capitalize on the global AI boom, while Brazil benefited from the commodity rally. India, meanwhile, became one of the key funding sources for this trade. However, that trend may now be fading.

South Korea was the first market to witness a sharp reversal, recording a record $1.3 billion outflow three weeks ago, followed by another $587 million in redemptions this week. Taiwan has also started seeing slower inflows and rising pressure, while Brazil recorded its biggest redemption since December 2024 at $230 million this week.

The pace of outflows from India has slowed meaningfully over recent months. India-focused fund outflows moderated to $702 million in May, compared with $1.5 billion in April and a historic $3.5 billion in March. Importantly, India-dedicated funds have now stabilized over the past two weeks after witnessing nearly $6 billion of outflows across 11 consecutive weeks.

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While long-only funds continue to face redemption pressure, ETF inflows are cushioning a large part of the selling. However, Japan-based flows into India saw a record outflow of $150 million, highlighting that foreign investor sentiment remains cautious.

The data suggests that while India is still facing foreign selling pressure, the aggressive global rotation away from Indian equities may finally be nearing its peak as the AI and commodity trades begin to cool.