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Emerging markets are seeing a cautious resurgence in foreign capital inflows, as investor fears over trade protectionism and tariff hikes begin to recede following US President Donald Trump's re-election in November 2024.
After an initial post-election exodus of funds from emerging markets (EMs) toward US assets, recent data analysed by Elara Capital suggests the tide may be turning. Over the past three weeks, key EMs—including India, Brazil, Hong Kong, and Taiwan—have reported notable recoveries in foreign investment, though South Korea remains an outlier with limited inflow momentum.
India has seen one of the strongest rebounds. Of the $7.7 billion in capital that exited Indian markets after the U.S. election—spanning both allocation and dedicated EM funds—$960 million, or roughly 12%, has returned in just three weeks, said a report by Elara Capital.
Big Money Flows Back to India: $724 Million In Weekly Inflows, Highest Since July
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Taiwan has witnessed a similar recovery, regaining 10% of its earlier redemptions.
This renewed interest in EM assets appears to be driven not by a rotation out of U.S. funds, but by incremental global liquidity entering the system. Despite the EM uptick, U.S. funds continue to draw robust foreign inflows, averaging $6 billion per week. However, domestic U.S. funds have been under sustained redemption pressure for six consecutive weeks, signaling shifting sentiment among American investors.
"India recorded its highest weekly inflow since July’24, at $724 mn. This was largely driven by $487mn going into India- dedicated funds—the biggest in 7-months. All inflows were concentrated in large-cap funds. Over past 6-weeks, India- dedicated funds attracted $1bn, split between $575mn into ETFs & $440mn into long-only large-cap funds. Luxembourg- domiciled funds accounted for 40% of these flows, followed by 35% from Ireland and 20% from the U.S. Meanwhile, Japan- focused funds have seen consistent outflows since Nov’24," said the report.
Meanwhile, global investor behavior in other asset classes also points to a potential easing of the broader risk-off sentiment that dominated markets in late 2024. Junk bonds attracted $3.6 billion in inflows this week after five consecutive weeks of heavy redemptions totaling $31 billion. On the flip side, gold funds—often a haven in turbulent times—saw $2.6 billion in outflows, snapping a 15-week streak of cumulative inflows amounting to $34 billion.
Foreign flows into U.S. funds remain strong, averaging $6 billion per week, suggesting that the recent shift toward EMs is not coming at the expense of U.S. assets. However, domestic U.S. funds have been under redemption pressure for six straight weeks, reflecting a possible divergence in global versus local investor sentiment.
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